OpinionJun 15 2016

GIP as the priority benefit

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GIP as the priority benefit
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Key points

GIP can provide financial protection should an employee lose their income due to illness or incapacity and safeguard an employee’s financial future by enabling employers to insure pension and National Insurance Contributions so these are still paid.

With a whole host of added value services, such as employee assistance programmes and vocational rehabilitation, now is the time to increase the profile of this increasingly crucial protection product which many in the financial services industry would argue is a priority.

The recent introduction of Automatic Enrolment (AE) has meant that as every employee now has access to a pension, employers need to think differently in the war for talent, to both retain and gain new employees.

If we were to park the legacy of pensions and be able to start again, I wonder if GIP would be higher up the corporate purchasers’ pecking order; after all, what is a pension other than a deferred income? GIP is a benefit which can protect employees’ current finances, now that pension savings are effectively taken care of, and can be a key differentiator between employers.

The market on the face of it appears to be doing well by premium and employee growth but only 17,111 employers have this type of benefit. Clearly with so few employers operating these schemes, it could be a great benefit to set an organisation apart from their competitors.

GIP is an inexpensive benefit, with a budget option costing as little as 0.2-0.5 per cent of salary for a limited benefit payment plan Paul Avis

2,106,180 employees are covered by GIP, and with around 100,000 new personal policies being sold annually it is likely that fewer than 10 per cent of individuals have any cover at all.

This means they are 100 per cent reliant on State Benefits or may still have an ill health early retirement pension if they have a defined benefit pension scheme which is becoming ever rarer.

Conversely our industry must be doing something right in the GIP world as, since 2006 we have covered 375,042 new employees (72 per cent of whom have been added since 2011) showing the value that existing, insured employers place on this benefit.

For organisations with schemes that have any form of limited eligibility, such as being closed to new entrants, or are for executives only, or for pension scheme members only, there are great reasons to expand schemes to new categories of employees.

GIP is an inexpensive benefit, with a budget option costing as little as 0.2-0.5 per cent of salary for a limited benefit payment plan. Yet it can provide invaluable financial protection should an employee find themselves unable to work due to illness or incapacity. Cost should not be a barrier when you ask yourself, “What would happen to me if I were sick?”

Much existing scheme expansion has been on the back of things such as:

• Automatic Enrolment (e.g. pension scheme eligibility is retained and includes the newly automatically enrolled),

• continuing welfare reform (highlighting the ever-increasing need for GIP to both employers and employees) and

• the increasing presence of online and flexible benefits where employee understanding about the paucity of State benefits is increasing.

Highly emotional press coverage on the following has all driven a greater awareness of the possibility of disability happening:

• reductions in State disability benefit amounts,

• awareness about how difficult it can be to get these benefits, specifically Personal Independence Payments,

• lack of support for mental health issues. This is the cause of 25 per cent of all GIP claims.

Employees arguably have the greatest financial responsibilities during their working years, with many facing mortgage/rent and credit card/car loan payments, utility bills etc. as well as the cost of supporting a family.

GIP provides an income in the event of incapacity that helps staff to meet these payments, even if they find themselves unable to work, making it the obvious priority benefit for anyone who would struggle without receiving their salary due to ill health.

Focusing on pensions makes financial sense when looking to maintain your income in 20, 30 or 40 years’ time. However, if an employee were to lose their salary due to ill-health, how would they be able to continue contributing towards their pension?

Having GIP in place means that employees’ pension and retirement plans can be maintained, which is despite a break in regular salary payments.

This is an issue that will become more commonplace as our research shows that 60 per cent of employees will expect to continue to work beyond traditional State Pension Age.

With age being the key determinant of the likelihood of workplace absence or long-term disability, gaps from work may become routine rather than irregular.

Traditional GIP pays a benefit while an employee is unable to work due to illness or injury, right up until the time they recover or retire. If they reach retirement, they could receive a full pension as contributions have been effectively maintained.

In addition to a basic benefit, GIP can also provide cover for National Insurance contributions, as well as pension scheme contributions, and staff will remain in their employer’s service. This means that they will still have access to other benefits, such as death benefits, private medical insurance or cash plans; these benefits can prove invaluable if an employee develops a long-term illness.

After all, if their employer chooses to cease a contract after Statutory Sick Pay has finished, then staff would no longer be entitled to benefits based on their employment.

Limited payment GIP (which represents around 17 per cent of the current market and 37 per cent of all employees covered) pays benefits for 2, 3 or 5 years rather than to retirement and can help as an affordable entry level benefit. Some 40 per cent of employees do not manage to return to work within three years so they provide superb value for money.

It is also possible to include a lump sum payment at the end of the limited payment period to meet a variety of needs. This could be used to fund extra pension costs or provide a stop-gap when regular payments cease.

Most GIP schemes are insured on an ‘own occupation’ definition of disability. So we assess whether a person’s illness or injury prevents them from and makes them incapable of performing the material and substantial duties of their normal occupation.

However our core aim is to enable them to return to work. As an industry there is a proliferation of Early Intervention Services (EIS) which are now evidencing the importance and value of early support, specifically on complex, subjective claims such as depression, anxiety, back pain and even stress.

By providing a paperless referral process from day one of an absence, to accessing a nurse who is a vocational rehabilitation specialist, we have quantified that 86 per cent of EIS referrals do not result in a claim, resulting in reduced claim incidences for employers and therefore sustainable, appropriate premiums.

Of these 52 per cent of employees who are referred to EIS make a return to work before reaching the point where assessment for a claim is required.

In addition we support employers with mental health issues from day one and we have evidenced that 80 per cent of these claims last only 7 months where EIS is used, compared to 2 years where EIS is not used - a 70 per cent reduction in claim duration. Mental health issues represent the cause 25 per cent of our claims and musculoskeletal represents a further 21 per cent. Both are addressed by the early intervention service so you can see why this is important.

Over half of UK employees have suffered from mental health problems while in employment, according to our research, so there is a clear need to support employers. This is an indication of the prevalence of mental health issues, with stress and depression the most commonly experienced problems.

As well as the financial advantages to employees and the outsourcing of rehabilitation to specialists, there are a whole host of added-value services provided alongside most GIP schemes. These services are designed to rehabilitate and reintegrate the employee back into the workplace.

An integral part of this is access to our vocational rehabilitation services which helps by complementing occupational health (OH) through, in most instances, the provision of some specific case support.

The potential to mitigate medical inflation and bad claims experience in the PMI arena are massive

Having a designated, medically qualified, vastly experienced rehabilitation consultant is a gift for employers who can mitigate their claims experience with early intervention, ensure compliance with the Equality Act (2010), reduce occupational and statutory sick pay and, in some cases, reallocate costs to more preventative/positive health and wellbeing work.

By engaging with our rehabilitation services, employers also ensure the most appropriate and suitable outcome for all involved in the absence and also saves on the cost of a diminished workforce or having to recruit a new staff member who may require training.

Use of the EAP

In some cases, a long-term absence from work could have been prevented by using the additional services provided as part of a GIP scheme. An insurer embedded employee assistance programme (EAP) that is charged as part of the premium, as opposed to being an additional charge for it, is commonplace in the GIP market.

Where it is provided as part of a GIP policy, employers need to ensure insured as well as non-insured employees gain the benefit of an EAP as otherwise only limited population communications are required. EAPs are a great way of supporting and maintaining the health of employees, with a wealth of services helping them to identify and resolve personal concerns that may affect job performance.

These could include health, marital relations, family, financial, alcohol, drugs, legal, emotional, stress, or other personal issues. These services should be actively promoted to get the most benefit for employees and we have developed a full suite of posters, case studies, guides and so on to help employers do this.

The most advanced EAP offerings also have online and telephone legal support for employers, offering compliant documentation, legislative updates, advice on tax and health and safety issues, as well as case-by-case support for individual situations.

This could significantly reduce the costs incurred from retained or out-sourced legal services and can be of benefit regardless of the size of the organisation.

Second medical opinion services can assist in validating private medical treatment and diagnosis whilst providing an employee with clinical certainty. Astonishingly in 2012 our insured employees using the service had a 17 per cent change in diagnosis and a 59 per cent change in treatments (in 2015 it was 11 per cent and 42 per cent).

So the potential to mitigate medical inflation and bad claims experience in the PMI arena are massive.

As with EAP and online and telephonic legal support the costs are included within the GIP premium and we have leveraged our size to get the best quality services that we can for our employer policyholders.

With all these added services, as well as the ability to provide some safeguard for your employees’ finances in the present as well as in the future, it would be foolish to overlook the benefits of having GIP. It should be considered alongside the statutory pension requirement, particularly as automatic enrolment has successfully covered this area of the market.

Make GIP the priority benefit and rest assured that your staff will be looked after and are healthy and happy as a result – which can only do wonders for company productivity and provide a clear differentiator for staff attraction and retention.

Paul Avis is marketing director at Canada Life Group Insurance