Paul Avis, marketing director at Canada Life Group Insurance and Peter Johnson Financial Services Research Director at ORC International, review what has happened in the group protection market over the last decade.
Ten years ago, a number of group protection providers in the U.K. approached the ORC International research company and asked, “Can you help us understand how advisers feel about the proposition, service and support we provide?”
Or something along those lines! 10 years on from the conversation that took place between seven of the leading group protection providers and ORC International back in 2007, the annual, syndicated “Group Protection Monitor” is still going strong.
Given an absolute maximum of 1.5% of businesses, probably closer to 1%, had group protection plans in 2007, there was clearly a significant protection gap and big market growth opportunity.
Providers were specifically concerned that their dominant distribution channel – specialist and generalist advisers – were not getting the support they needed to understand and grow the market.
The group risk specialists and divisions of larger insurers wanted clarity on the challenges faced by advisers to effectively target improvements to their propositions and increase sales support. Of course, the opportunity to benchmark against their peer group was of great interest too.
Every year since 2007, a cross-section of Financial Advisers (FAs) and Employee Benefit Consultants (EBCs) who actively write group life, income or critical illness protection are surveyed to provide a benchmark for providers to show how they are performing in terms of:
- The proposition itself – e.g. how are competitiveness of products, the provision of value added services and innovation in the market perceived?
- Pre-sales and marketing support – e.g. the quality of sales aids, fact sheets, website and consultant support
- Sales and post-sales support experienced at key touchpoints – e.g. help with new business quotations, the medical underwriting process, setting up a plan, ongoing administration of plans and managing claims
Within this article we provide an overview of what has happened in the group protection market over the last decade.
The importance of research to group protection insurers
The ORC survey tells insurers how they are performing in the eyes of their key distribution partners. The UK group insurance market works collegiately on the survey.
While each insurer can disclose certain information, e.g. “We are the number one insurer for service,” no specific competitor reference can be made by one insurer about another. The ORC Group Protection Monitor is a fantastic market survey, but an even better one for understanding how you are doing against your peer group.
From this analysis, it is fair to say that providers operate against the backdrop of a workforce that is largely underinsured. The protection gap persists despite encouraging signs of growth in the number of plans (in some areas), lives covered and therefore premiums written.
Advisers tell ORC that price is the key barrier to growth
Given that these products are taken out by employers via intermediaries, with a mandate to find them the best deal they can, it’s not surprising that competitive rates represent one of the most important part of the proposition and are an area providers should be delivering on.
For UK advisers, they also believe it is always easier to sell something that is cheaper, often at the cost of quality, and they tell providers that their client businesses are always looking to save money.
Insurers respond to this challenge by pointing out that plans to suit every budget and product flexibility (limited payment term group income protection, fixed benefit group critical illness or group life benefits) are already available.
Many insurers believe that advisers are not actively or strategically seeking new to market clients, preferring instead to capture other intermediaries’ existing clients.
However, while reducing the price will of course make the market more competitive, it will only go so far in terms of growing the market.
Death and serious illness are uncomfortable subjects that no one really likes to talk about, and the mind-set of, “It will never happen to me, and the State will look after me if it does,” can be hard to shift.
Unfortunately for protection products, they have never been given the prominence of some other types of benefits – they are less tangible, and have certainly never been ‘en vogue’.
However, the impact upon the lives of people who are uninsured and are affected needs to make employers take note. There is a genuine need for these benefits: in 2016, there were just under 600,000 deaths in the UK, of which some 16% (98,000) were of working age.
The bigger picture – 3 big changes that can impact growth
Over the last 10 years, alongside the financial crash and recent recession, arguably the three biggest external factors which have impacted the growth of the group protection market are:
- The pension landscape has gone through one of its biggest shifts in the last 50 years. To address the issue of people not saving for their retirement, auto-enrolment kicked off in 2012 with the largest firms starting to automatically enrol their employees into their company pensions first. Smaller firms (which account for the lion’s share of private sector businesses by number, if not by employees) having just recently followed suit. A 3 year re-enrolment exercise is underway for many or has been done for larger employers.
Back in 2012, we asked intermediaries what they thought the impact of auto-enrolment would be on their business. Almost 60% agreed that it represented a great opportunity to write more group protection arrangements i.e. get more employers into the market, alongside new pension arrangements.
Lo and behold, the prediction was wrong. The new employer market did not materially grow. What did hold firm was that 2013 registered a record number of new employees, not employers, being covered through workplace plans.
- After the financial crash of 10 years ago, a number of economists emerged to highlight the need to look beyond traditional metrics of economic performance and ‘boom and bust’ cycles, and instead to look more into employee wellbeing. Indeed, more and more evidence has come to light to show that greater prosperity doesn’t bring with it higher levels of happiness by itself.
It was against this backdrop that a cross-party parliamentary group on wellbeing economics was established.
It is arguably no coincidence that industry commentary and marketing relating to group life assurance, income protection and critical illness cover is increasingly positioned as a central part of a company’s employee benefits offering, rather than a product line for which there exists very little exposure and coverage across consumer media.
Looking forward, the Department for Work and Pensions (DWP) Green Paper “Work, Health and Disability: Improving Lives” of 2016 is due to release its findings in late 2017. It is expected to be seriously considering group income protection as the best way to retain disabled employees in the workplace, following a detailed, ongoing evidence assessment by the DWP.
- Also emerging from the House of Commons, albeit more recently, was the 2016 Welfare Reform and Work Act, which reduced the financial amounts available for many State benefit claimants. It aims to increase the likelihood of people seeking (and returning to) work, using tools such as assessments and sanctions for those not deemed to be job-seeking.
A key component of this initiative is linked to the Government’s aim to reduce welfare benefits for people being out of work – and thereby, the argument goes, trigger employers to put cover in place as part of their employee benefits provision.
State disability benefits reduced by around 30% in April 2017 with the removal of the Work-Related Activity Component of Employment Support Allowance (ESA), and employees are expected to live on a basic income of £3,801 (approx. USD 5,057)per year.
With reducing and capped support in other areas of potential support, the need for group income protection by employees has been significantly increased. Can anyone live on this amount, let alone retain any quality of life?
It is apparent that the last 10 years have seen significant macro-level changes that have helped shape the group protection market.