Group protection market is growing

Group protection market is growing

The number of people insured under group-risk policies sponsored by their employers increased by 3.3 per cent in 2018, according to new research.

The latest Swiss Re Group Watch Report, published on Monday (April 15), showed the number of policies taken out by employers had increased to 79,906 in 2018 and the number of people insured for life insurance, critical illness or income protection through their employer had grown to 12.9m — both 3.3 per cent up on the previous year.

Commenting on the findings, Ron Wheatcroft, technical manager at Swiss Re, said: "We’ve now got 12.9m people covered under employee-sponsored group-risk policies, and I think that’s pretty great.

"It’s fantastic so many employers are insuring their employees. It’s been a steady and unspectacular year for group protection."

The largest jump seen in the report was in expected group life policies. The number of people insured under EGLPs increased by 27.2 per cent and the number of active policies increased by 31.6 per cent.

Mr Wheatcroft said the jump in EGLPs could be partly attributed to the fact a payment from such a policy does not affect the recipient’s tax-free lifetime allowance.

Whereas the majority of group life insurance policies — registered policies — are set up under pension legislation, an excepted policy is subject to life insurance legislation instead. This means the policy is not tested against the lifetime allowance and will not impact the tax-free part of the recipient's pension pot.

For the 2018/19 tax year, the lifetime allowance is £1,055,000 and anything above is taxable at 55 per cent. Therefore, a registered policy could push the recipient's pot over the limit and risk a 55 per cent tax on the pay-out.

Mr Wheatcroft said: "If you were starting up a new policy, would you start up a registered policy which impacted the recipient’s pension arrangement? I don’t think so.

"We did predict a large rise in the number of EGLPs being undertaken but potentially not quite as much."

The report also showed the number of people insured under long-term disability income protection had increased by 2.2 per cent and the number who had critical illness cover through their employer was up by 4.8 per cent.

The only policy area to see a major drop was the number of insured members covered by death-in-service pension benefits, falling by 29.8 per cent from 2017.

Mr Wheatcroft said: "As the cost of cover has increased in a prolonged period of low interest rates and a number of providers no longer quote, there has been a shift to providing lump sum benefits only.

"With the number of policies dropping by 10.6 per cent, there is clear evidence that it is the larger arrangements which are closing. Swiss Re would expect this trend to continue in 2019 and beyond."

Nick Homer, head of market management at Zurich, said death-in-service benefits were largely legacy arrangements that were not sustainable from a cost perspective.