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.
He added: "Therefore, there is a trend towards these arrangements being re-engineered as lump sum registered group life policies."
During the survey, many participants flagged the uncertainty caused by Brexit and the impact that had on the market.
Employee benefit consultants reported to Swiss Re that many employers were putting large financial decisions aside — whether that be to add or change risk benefits — until there was greater clarity in the market.
The report stated businesses were struggling to manage short-term issues and in general, were not committing to longer-term plans such as group insurance policies.
Tim Stoves, managing director at Canada Life Group Insurance, said: "It’s great news that the market continues to grow and now covers 12.9m people, which is over a third of the UK workforce.
"To see such growth in challenging times is a testament to the hard work of all the providers and advisers to bring these products to as many people as possible."
Johnny Timpson, chair of the Access to Insurance Working Group, agreed the continued growth in workplace protection coverage was welcome news.
He added: "It is especially pleasing given the record number of people in work in the UK, including a record number of women and people with disabilities in work.
"The accessibility of group risk insurance and small number of cases requiring initial underwriting makes the provision of cover an especially valuable benefit for employees with pre-existing health conditions and disabilities who may find it difficult to access individual cover.
"The availability of cover via the workplace is also an ideal way of tackling both the UK gender and generation rent protection gaps, both of which have been highlighted repeatedly by Scottish Widows research and that of other offices."
imogen.tew@ft.com
