Insurance providers must work harder to develop better and more affordable group income protection products for smaller employers, the Department for Work and Pensions has said.
In an 88-page Green Paper issued by the DWP and the Department of Health (DoH), the government called on the insurance industry to create appropriate products that will get more employees covered by a workplace-based policy, and reduce the burden on the state of long-term sick pay.
The document, called: Improving Lives - The Work, Health and Disability Green Paper, set out various measures to make sure UK employers do more to invest in their employees' health and wellbeing.
According to the paper, the government believes one way to reduce the burden on the state, improve return-to-work statistics and support people after periods of sickness is to give group income protection (GIP) a "greater role to play".
In the paper, the DWP and DoH claimed uptake of GIP was "very low", as only 7 per cent to 8 per cent of the working population has been covered by such a policy.
If GIP schemes are to be a success, the Government needs to ensure the appropriate tax breaks are available to make them attractive to employers and employees. Paul LitsterThis 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".
The government also believes "cost and awareness of the product are also thought to be a factor" in the low take-up, given the average cost of GIP was approximately £250 to £450 an employee each year.
The paper also stated that employers had to take more responsibility to promote GIP and "invest in their employees' wellbeing".
It stated: "We think GIP policies have a much greater role to play in supporting employers in taking this action and therefore want to explore why larger employers are not making better use of these products, and what would encourage them to do so."
Katharine Moxham, spokesman for the Group Risk Development (Grid), said: "We welcome the Green Paper and are particularly pleased to see that the role group income protection can play in supporting employers' health, wellness and attendance programmes has been recognised.
"GIP enables employers to take a more proactive approach to the health, wellbeing and financial resilience of their employees.
"Both Government and the industry have a role to play in raising awareness of the need to protect income against the consequences of prolonged illness or disability and the importance of the workplace in particular in helping to achieve this."
She said Grid would be "happy" to work with Government on initiatives to grow awareness among UK employers.
In October, Grid carried out a study of 501 UK firms, with between five and 1,000 employees. The study discovered 70 per cent of employers thought group protection would cost too much to roll out to all staff.
Some 8 per cent of employers even thought it would set them back more than 10 per cent of their payroll.
However, the actual average cost is just 0.5 per cent of payroll, according to Ms Moxham.
Paul Litster, managing director of new protection provider Specialists4Protection, said: "The government is sending out clear signals that protection insurance is coming of age and ready to take its place as a mainstream product in the insurance toolbox."
“However, if GIP schemes are to be a success, the government needs to ensure the appropriate tax breaks are available to make them attractive to employers and employees.
"If such tax breaks are not available, then ultimately the burden will fall on the government or NHS – and we all know the immense amount of pressure they are already under.”
In October, FTAdviser reported that despite the availability of group income protection plans, and the relative low cost as a proportion of payroll, too many employers still did not adopt GIP for their employees.
Even when an organisation did have a GIP plan in place, the communication of employee benefits was poor.
This is despite data published by the UK Government in February 2014, which revealed as many as 960,000 workers were on sick leave each year for a month or more, on average between October 2010 and September 2013.
What next?
The DWP Green Paper has been published alongside a consultation on Work and Health, which is available on the government's website. It comprises 45 questions and is open until 17 February 2017.
