Insurers are hard to satisfy.
A 4.5 per cent increase in employees covered and a 3.8 per cent increase in premiums meant that at the end of 2016, more than 12 million people and £2.106bn were insured by group risk products.
This would be considered an amazing year in any other financial services industry. So what is the problem for insurers?
The major issue is that too few customers are buying group risk products. As an industry, we have penetrated less than 8 per cent of potential Group Life customers and if we extract employers with multiple schemes, these numbers are even lower.
Delving beneath the surface
With only 72,841 group risk schemes in the market, we have a long road ahead. On the plus side, this increased by 1,675 schemes, or 2.4% annually – but if you delve below the surface another serious issue emerges.
There are still only 17,168 employers with Group Income Protection. While 57 new employers is certainly welcome, it represents a woeful 0.3% annual increase in organisations purchasing this priority product, leaving very little to celebrate.
The number of people covered by Excepted schemes is an even greater issue. In 2012, there were 344,889 people covered – this increased to 644,492 in 2016.
With under 300,000 additional people in four years, this could represent the number of people affected by the reduction to £1m in 2016, (thought to be more than 450,000). But in 2016 the market grew from 490,911 people covered to 644,492.
Does this steep rise mean an increased uptake of Excepted schemes is going to be an ongoing trend? Have we reached all the employers that have people affected? Or is there more at play here than meets the eye?
Specialist advice needed
The need for advice in this specialist area remains and specific discussions with taxation and legal specialists when considering and implementing an Excepted scheme should always be the adviser’s recommendation to the employer.
Recent changes made following the 2017 Finance Bill mean that excepted Salary Sacrifice schemes no longer benefit from the advantages offered by Registered schemes – which may lead to a reversal for some larger employers.
Product appropriateness needs to be assessed: with the estimated average UK pension pot around £87,000, most Registered schemes, however generous the death benefits are, will rarely lead to an employee exceeding £1m on death.
Excepted schemes have their place, but they’re not for everyone. In this burgeoning market, it will not be long before the impact on potential tax revenue leads to an increased scrutiny on this benefit. That is when the advice given will be reviewed.
On the face of it, insurers are working in a thriving industry. But there is a huge amount of work required to increase customer numbers and ensure that correct, appropriate and thorough advice is provided.