The government has called on the protection industry to improve product design in order to boost take-up of group income protection (GIP).
In the Improving Lives: The Future of Work, Health and Disability report, published on Thursday (30 November), it urged providers to develop GIP insurance products that better meet the needs of smaller businesses.
The report claims many small and medium-sized enterprises (SMEs) do not offer sick pay for periods beyond statutory requirements but lack incentives to invest in GIP.
It calls on providers to develop a product that retains the established benefits of GIP but overcomes the barriers to wider take-up, including factors such as complexity, perceptions of cost and benefit.
The government hopes to boost GIP as a means of encouraging more disabled people into work, having made a manifesto commitment to ensure one million more disabled people are employed over the next ten years.
The report also sets out plans to encourage employers to improve their support for workers with mental health conditions and reform the fit for work certificate – or fit note – to encourage people back to work and involve other health professionals beyond GPs in the certification process.
Elliot Silk, head of commercial at Sanlam UK, said: "The issue for SMEs is once an employee goes sick it means that employee is staying on the payroll, and it is more difficult to remove them from the workplace.
"It is quite difficult to replace that person, which puts pressure on the other members of the team."
Mr Silk said insurers could possibly get around this by allowing a direct pay facility rather than going through the company payroll.
But he added: "It is potentially easier for them dealing with an employer rather than an individual. Once they pay directly, the employer is not necessarily encouraging them back to work."
Zurich welcomed the government’s focus on GIP as a means of helping firms to support their employees but raised concerns about the issue of product design.
Nick Homer, Zurich's head of market management, corporate risk, said: “We are concerned that the government believes that the main challenge to increasing the take-up of GIP is one of product design, as it is a flexible product that can be tailored to meet the needs and budgets of SMEs through to multi-national organisations. The challenges are much broader environmental issues.
"We strongly believe that the government must work in partnership with the private sector to create an environment that incentivises employers to take action to protect their employees, and we look forward to engaging with them further on this important issue."
These concerns were echoed by Nadeem Farid, employee benefits consultant at Drewberry, who said the biggest barrier to take-up of GIP was public knowledge and perception of the product.
He added that many employers approached the firm looking for critical illness cover but preferred group income protection once they realised what the product involved.