An estimated 8.5m working adults with dependants are not insured: a major protection gap. Two large markets exist with millions of people covered in each but which is most appropriate to fill the gap?
To get the best solution an adviser needs to understand the key features of both markets and be able to explain this to clients.
The fundamental difference is that group insurance is linked to employment and the employer covers most, and ideally all, staff.
By insuring large numbers of people who are included as a result of working for an employer rather than because they chose cover personally, the risk of selection against the provider is reduced.
There is therefore little requirement to collect medical evidence for each individual, unless they are very highly paid, and most people can be included if they are not already absent due to illness.
Administration is further reduced by dealing with the employer and not each person individually, and this leads to cost savings. The employer will get relief as a business expense on the premiums whilst personal contracts are paid for out of taxed income.
There are three main employee benefits that could be regarded as group protection. Let us look in more depth at the products available on a group basis, life, income protection and critical illness.
Although it has the least extensive coverage of the benefits, critical illness most clearly illustrates the difference in underwriting approach between group and individual business.
Individual business will be underwritten at outset. The majority of people are offered full cover at standard rates but some are loaded, have some conditions declined, have exclusions imposed or are declined cover.
In contrast group business is administratively simple and employees, and sometimes their partners, are allowed into the scheme subject to a permanent pre-existing condition clause and a time limited related conditions clause (typically two years).
People who may have been declined or offered non-standard terms during the underwriting process are instead reviewed if a claim is submitted.
Communication of the cover and terms to the employee is clearly key, especially for the 57 per cent who are obtaining their cover through an employer’s flexible benefit plan.
This can be an issue for all critical Illness – when ill someone is unlikely to check their medical records against the details of a long list of conditions before submitting a claim. The Group Risk Development (Grid) claims stats for 2015 show 11.6 per cent of claims submitted were for illnesses not covered or not meeting the definition.
Where organisations clearly communicate the benefit to the employees, using insurer materials, they are afforded the most protection against disputed claims. This is easiest with flexible benefit schemes, as annual changes and lifetime events provide the opportunity for such on-going employee communications.