It is fair to say that in the public domain insurance companies are not the most loved of businesses...
It is fair to say that in the public domain insurance companies are not the most loved of businesses. But group income protection providers are trying to shake off this image and are selling themselves as something more than an insurance company - as an occupational health solution to employers, providing an employer with the means to control absence in the workplace where insurance plays only a part.
"The market has now moved and can recognise the advantages of rehabilitating staff back to work and employers are thinking seriously about loss of staff,'' says Brian Rawle, marketing manager at Scottish Equitable Employee Benefits. "There was an attitude that staff can be easily replaced but this is changing, especially in highly skilled industries."
However, John Ritchie, marketing manager of employee benefits at Swiss Life, says this means a lot more than becoming involved with a claimant after, say, six months as rehabilitation becomes increasingly difficult with time. He says: "You cannot manage long-term absence without effectively managing short-term absences. We need to find out about potential claimants at six to eight weeks rather than at 26 weeks."
Managing a claim effectively means the insurance company must be adaptable and open-minded to achieve the outcome desired by all parties. Nick Homer, income protection product manager at Norwich Union Healthcare, says: "We need to stay close to each claim as each is different and we need to understand exactly what the claimant's job involves."
Once a claim is made, Homer says, a claims visitor will give the claimant general support - for example, putting them in touch with relevant organisations. They will also be able to put claimants on specialist rehabilitation courses or arrange worksite assessments with occupational therapists. It is such services that really help employers appreciate income protection, says Homer.
Nick Lomas, marketing manager at UNUM, sees claim patterns are changing. He says: "There is a continuing trend of back and heart problems being replaced by stress, anxiety and depression, which now account for 23% of all claims. Employer demands on their staff and expectations of staff are high. Businesses are working harder with increased productivity."
As a result, people are being pushed or are pushing themselves too hard and stress is the natural outcome. This worrying trend has led UNUM to work on the rehabilitation services available to stress claimants. This can involve, for example, arranging stress management facilities and offering advice on return to work plans, as a gradual return to work can be much more effective than a sudden return to full-time work.
Premiums for group income protection schemes are on the up. According to ERC Frankona's research, premium income rose by 18% last year and Scottish Equitable Employee Benefits has estimated premiums across the board have increased by, on average, 15% this year. UNUM estimated a more conservative 10%. This has been attributed to falling interest rates which has made the cost of claim payment rise, as more money has to be set aside for this purpose since insurers are receiving a lower return on their investment.
However, a rising incidence in stress claims has also played a part. Homer says: "Mental illness is a major cause of claim and they often turn into long-term claims."
Therefore, any moves to keep an escalating cost from rising further has to be welcomed as claims experience is the biggest driver of price on larger schemes.
Jane Dale, director of group risk at Legal & General, says: "The best way to control price is through claims management. An employer's pricing is affected by poor claims experience, so the more we can all do to improve claims incidence the better. This is why insurance companies are so keen to help employers control their claims. But this is not about pushing staff back to work before they are ready, it is about understanding the culture of the workplace and the attitude of the employer."
It is no surprise then that on new schemes underwriters will take into consideration absence management procedures already in place before setting the price. A scheme is therefore priced on much more than age, sex, benefit and location.
Ritchie says: "We need to find out the attitude of the employer and find out what they are actively doing to manage absence."
The price difference between the best and worst employers can be between 15% and 200%, so clearly less proactive employers will pay over the odds for cover.
IFAs that play a part in arranging successful schemes that impact on the employer's bottom line will reap the benefits, says Rawle. He adds: "IFAs will develop a much closer relationship with companies and more loyalty is generated from the customer to the adviser in this way."
On the whole, group income protection has had a good year and is experiencing continuing growth. ERC Frankona's research confirms that, while the number of schemes has not increased a great deal, the number of lives covered rose by almost 90,000 between 1998 and 1999. According to UNUM, the biggest growth area is in small to medium-sized businesses and since 1998 has seen sales in this sector of the market increase by 40%.
Lomas says: "Many medium-sized companies are taking out cover for the first time. The labour market is tight and as companies enter their second phase they are looking more closely at their health policies and how to retain staff. More are now reaching this stage due to the growth of internet, telecoms and a buoyant economy."
This trend has been most marked in 'people' businesses reliant on a highly skilled workforce, such as technology and telecom companies, management consultants and public relations and advertising firms. Norwich Union has also highlighted the small business ma
Putting the tech into protection
Square Mile’s series of informal interviews
Fallout from Haywood suspension
Launching later in 2019
£80bn funds under calculation