The paper highlighted the cost of ill-health to the economy, estimated at around £100bn per year with almost 140m days lost in 2016, more than 45m of which were due to reasons of mental health or musculoskeletal conditions.

It stated that 4.6m disabled people and people with long-term health conditions are out of work. Just 48 per cent of disabled people are in employment, compared to 80 per cent of the non-disabled population. 

The paper also posed a number of questions regarding the role that smaller employers could play in supporting the health of their workforce, a theme which the government has been keen to follow through subsequently. Just one extract shows why they are interested and the view that government held of the insurance customer base.

It said: “Smaller employers are also important: they represent the vast majority of UK businesses and employ around 36 per cent of the UK workforce.

“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, but cost and awareness of the products are also thought to be a factor (between £250 to £450 per employee per year).”

The paper went on to say that government wants to see employers doing more to invest in their employees’ health and wellbeing, stressing the benefits that such investment brings. 

Road Map

The government engaged very widely across the many stakeholders, including the insurance market, receiving around 6,000 responses in total. Subsequently, it published a Road Map at the end of November 2017, bringing greater clarity on the areas it plans to prioritise and setting out the next stages of this important work. 

The Road Map replaces the untimed pledge in the Green Paper to halve the disability employment gap with a more specific ambition to increase the number of disabled people in work from 3.5m to 4.5m in 10 years’ time. Annual reports showing progress will be published but meeting such ambitious targets will need many firms, irrespective of size, to contribute.

Insurance market

Inevitably, much of the discussion in the paper and now in the Road Map, continues to be centred on the role of the employer. Consequently, both documents go beyond the scope of how insurance can help. Insurance does, though, have an important role to play, one which could expand massively, given the right conditions. 

It is encouraging that the government intends to continue talking with the insurance industry. The prize can be very big if the market can provide the mix of benefits and services which support and are relevant to a modern employer. That mix will see a greater emphasis on the services which help employees to return to work where they are able to do.

The positive references to group income protection (GIP) support the industry’s messages that early intervention, rehabilitation and other integral services are fundamental to meeting the government’s ambitions. Active management of actual and potential claimants, leading to an earlier return to work, means that the government has enjoyed increased tax and National Insurance receipts.

Data reported by Swiss Re in its Group Watch 2018 report show that the number of members of group income protection policies increased by 5 per cent in 2017 with in-force policies increasing by 1.5 per cent (259 policies). This is the first increase in policy numbers since at least 2004 but just takes us back to the number of in-force policies in 2010.

Currently, only 2.4m employed people are members of group income protection policies and there are just 17,442 in-force policies. Even allowing for some employers choosing to self-insure continued income payments during sickness, there is much more that the market could contribute both as an employee benefit and to support sound risk management practices. While we may talk in terms of an income payment as an employee benefit, the integral support provided does far more than just supporting the employee with continuing income during a period of disability. 

Just over 1m individuals have a personal income protection policy and the low levels of income replacement leave many workers vulnerable to loss of income and needing to fall back on to state benefits where available. Comparatively, the UK has the largest disability protection gap when measured against other European countries. In 2015, this figure was calculated to be £200bn of annual benefits.

In its 2017 and 2018 Group Watch reports, Swiss Re tested coverage of SME workers, publishing for the first time a split of in-force GIP policies measured by the number of members.

Contrary to what had almost become perceived wisdom in government circles, the data show that 70 per cent of all policies cover fewer than 50 members. While a number of insurers were not able to separate SME policies from those just covering a few high earners in larger organisations, anecdotally the majority are arranged to cover smaller employers. 

The need for simplicity? 

The Road Map challenges the industry to consider developing a product “that retains the positive aspects of GIP but which overcomes the existing challenges (complexity, perceptions of cost and benefit) and therefore is likely to be more widely taken up”.

It is certainly the case, as the Road Map asserts, that SMEs in particular, have a lower take up rate overall than other employers: this is hardly a fair comparison given that SMEs make up more than 99 per cent of all employers. 

Whether the solution for GIP lies in product simplification is a moot point. Respondents to the research questionnaire supporting Group Watch 2018 suggested that the issue lies more in the costs of distributing and ongoing servicing of the client. Others, though, did see some merit in a specific proposition, perhaps paying benefit of up to 50 per cent of salary for two years, with some rehabilitation as part of that proposition.

Looking more broadly at the SME sector, research carried out by Legal & General to identify the business protection gap shows that there is low take up of cover to protect businesses against the financial consequences of the loss through death or disability of a key individual.

Such a loss could mean the end of that business. This suggests that making businesses, and smaller firms in particular, more resilient to financial shocks, is the wider problem that we need to address. 

Ron Wheatcroft is technical manager of Swiss Re Europe