Corporate clients can bridge protection gap

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Corporate clients can bridge protection gap

Corporate clients with even small workforces can bring more people under the cover of group income protection. 

According to Jeff Woods, business development director at Sesame Bankhall Group: "Employers can play an important role by making information available so people fully appreciate the financial consequences of ill health."

Mr Woods adds: "Employers can also put a group income protection (GIP) scheme in place to help their employees receive financial support for longer.

"This, in turn, has a positive knock-on effect by enabling employees to more readily afford their own personal cover, over and above what their employer provides."

Expense

Group income protection is not as expensive as your corporate clients may think.

In 2016, research carried out among more than 500 UK employers by Group Risk Development (Grid) found 60 per cent of employers thought having a form of group insurance would cost a significant proportion of payroll. 

There's more than just financial support for employees. Group income protection focuses as much on sickness prevention and early prevention.Katharine Moxham

Some 9 per cent thought it could be more than 10 per cent of payroll.

In fact, on average across the UK, the costs for group income protection are less than 1 per cent of payroll and can be as little as 0.25 per cent.

In real terms, according to a recent government green paper, the Department of Work & Pensions has stated the average cost of group income protection was approximately £250 to £450 an employee each year.

Katharine Moxham, spokesman for Grid, comments: "Employers have a pivotal role to play in helping people to access affordable income protection.

"If employers do not currently provide group income protection to their staff, they should review it now. It can provide financial support when it is most needed, and is much more affordable for businesses to provide than they realise."

And it can be far more expensive to an employer to lose a key member of staff or hire cover for them than the cost of cover, says Paul Litster, managing director of Specialists4Protection.

He explains how, according to data published by the UK government in February 2014, as many as 960,000 workers were on leave each year for a month or more.

"This, coupled with the fact many employers only pay their staff full wages for a relatively short length of time when they are off sick, means there is a huge need for such a policy.

"Employers of all sizes need to be aware of the benefits such policies can bring, not just to set themselves apart as an employer of choice, but to ensure loyalty and commitment from their workforce."

Grid's Ms Moxham adds: "There's more than just financial support for employees. Group income protection focuses as much on sickness prevention and early prevention."

Benefit

The government itself has seen the benefit of using the workforce as a means to close the UK's protection gap.

In the 88-page green paper issued by the Department for Work & Pensions and the Department of Health in November 2016, it claimed uptake of group income protection was "very low", as only 7 per cent to 8 per cent of the working population has been covered by such a policy.

This was particularly problematic among smaller companies.

The document stated: "Coverage is particularly low among small and medium-sized employers; in part, this might be because some insurance providers do not offer products to very small businesses."

Accordingly, the government called on insurance providers to "develop GIP products that are affordable for, and tailored to meet the needs of, smaller employers, including micro-businesses, and for them to raise awareness and make access to such products easier".

If more corporate clients included this as part of the employee benefits package, they may not have to suffer the longer-term business effects of having to replace staff who have had to leave due to ill-health.

This is a serious concern. The Association of British Insurers (ABI) recently revealed high levels of work-related absence, and only small numbers of people being able to return to work across the UK.

Even those employers who do have some form of insurance that offers rehabilitation and return to work services do not do enough to promote this.

Nick Homer, group protection manager of corporate propositions for Zurich, provides these tips for advisers with corporate clients considering income protection.

  • Ideally implement a group income protection arrangement, particularly because this gives some employees access to cover that they wouldn't otherwise be able to obtain personally.
  • Clarify and communicate their sick pay provision, so that employees have a clear sight of their personal income protection gap / private provision needs.
  • Promote financial well-being and highlight the importance of protection during your working life as well as retirement planning.

According to Martin Noone, managing director for workplace health and protection at Legal & General, communicating these benefits to staff is vital.

He says: "Our recent workplace wellbeing research found more than 50 per cent of employees surveyed had either themselves or knew someone who had been off work with a long-term absence in the past 12 months.

"This, coupled with 49 per cent saying they would only last two weeks or less before having to make cutbacks if their salary were replaced by the statutory sick pay, shows the extent of the problem and the need for income protection."

Add-ons

This is why corporate clients may find the supporting services attached to many group income protection policies extremely useful for retaining key staff and getting them back to work as soon as possible.

Such programmes have already been proven to work.

According to the Association of British Insurer's 2014 report: Welfare Reform for the 21st Century, companies with proper employee support programmes have seen benefits for both the employer and the employee.

The report stated: "Among insurers offering such intervention in the US, it was found to be 43 per cent more effective than non-intervention.

"A more recent two-year trial by the Royal Mail led to three-quarters of those off work returning to work, with a rate of return of £5 for every £1 invested."

Adam Higgs, adviser services and head of research for F&TRC, says: "The recent Seven Families campaign highlighted the good work insurers do to help people suffering illness or injury to get their lives back on track. 

"Additional services such as rehabilitation and emotional support are offered by most insurers, and such services are vital in helping claimants return to work sooner than they might have done otherwise."

For example, Canada Life's employee assistance programme helped one woman back into the workplace after suffering from cancer, as the below case study shows.

Case Study 1: Laura

Another example is that of Mr A, provided by Grid.

Case Study 2: Mr A

Mr A had been working in IT when he was diagnosed with a severe depressive illness. As a result he was absent for more than two years.

The employer had a GIP policy which provided a benefit of a percentage of his pre-incapacity salary, so he had no financial worries on top of his illness. He paid tax and national insurance on the benefits and was not left to rely on means-tested state benefits.

The provider gave support to Mr A during his illness and advised him and his employer on steps he could take to return to work. At the appropriate time, the insurer:

  • Instigates a discussion around a return to work.
  • Was instrumental in drawing up a tailored graduated return-to-work programme.
  • Undertook preparatory groundwork for the return to work.
  • Monitored progress with upgrades taking place where appropriate.
  • Provided Mr A with support during the return to work programme.
  • Ensured ongoing support was in place to manage any setbacks.

After the return to work, the insurer continued to provide telephone support to Mr A for several months.

During the graduated return to work, the insurer paid a proportionate benefit - for example if he were earning 25 per cent or his pre-incapacity salary, the insurer would pay 75 per cent of the full benefit.

If his earnings increased to 50 per cent of salary, the insurer would pay 50 per cent of the full benefit.

Peace of mind

This also gives peace of mind to your corporate clients, knowing their staff will be loyal and motivated, as well as providing some important tax benefits.

 As Emma Wilson, employee benefits consultant at Drewberry, comments: "I see firsthand how important employee benefits can be to some members of staff.

"They make sure employees feel valued at work - which can help with recruitment and retention - as well as boosting morale.

"Employers often want to give something back to staff by offering cover in case the employee suffers an illness or injury.

"The individual gets peace of mind, and the employer has the option to include the employee's national insurance and pension contributions in the payout, so these are also covered during the leave of absence."

Moreover, group income protection premiums are usually an allowable business expense for the employer, and eligible for corporation tax relief, which is a strong attraction for companies, she adds.

simoney.kyriakou@ft.com