In the latest in his series offering protection non-specialists an introduction to group risk, Paul Avis discusses how to make sure group risk benefits and insurance are fit for the modern workforce
Group critical illness (GCI) provides a one off, lump-sum payment to an employee once they are diagnosed with and survive a serious condition - usually for 14 days. With only 3,311 employers having the cover in 2016, the market did grow by 7.3% and now covers 586,275 people.
There are two formats of the benefit - employer-paid, which attracts a P11d/benefit in kind charge, and employee-paid. Some organisations will provide a core benefit amount and then an employee ‘tops up' using an online/voluntary or flexible benefit platform approach.
The latter employee-paid options represent 65% of all premiums paid and clearly underpins market growth, with a 12.1% increase in voluntary/flex arrangements in 2016 versus a 1.6% growth in employer-paid versions.
Unlike the individual market, the group market focuses on core conditions such as cancer, heart attack and stroke, which represent around 85% of all claims.
Cancer is the biggest single cause and, while cancer-specific cover can now be purchased, the cost differential between that and a full GCI policy is often deemed not to be enough and traditional policies dominate the market. When looking at conditions covered, group policies will usually offer a basic range of about 10 to 20 conditions, and an optional wider range of perhaps 35 to 50 conditions.
Critical illness most clearly illustrates the difference in underwriting approach between group and individual business. Individual business will be underwritten at outset. The majority of people are offered full cover at standard rates but some are loaded, have some conditions declined, have exclusions imposed or are declined cover.
In contrast, group business is administratively simple and employees - and sometimes their partners - are allowed into the scheme subject to a permanent pre-existing condition clause and a time-limited related conditions clause (typically two years).
People who may have been declined or offered non-standard terms during the underwriting process are instead reviewed if a claim is submitted.
Communication is vital
Communication of the cover and terms to the employee is clearly vital - especially for those who are obtaining their cover through an employer's flexible benefit plan. The industry claim statistics for 2016 show the main reasons for turning down claims were:
* The employee's condition not meeting the definition of critical illness being claimed for. Almost half (47%) of declined claims in 2016 were turned down for this reason. There was, for example, a case where someone wanted to claim for a heart attack when they had chest pains but had not had a heart attack. The insurer's decision not to pay the claim was upheld by the Financial Ombudsman Service.
* The claim was for an existing medical condition the employee had at the time of joining the scheme (GCI policies generally operate a pre-existing conditions exclusion). More than one-third (37%) of declined claims in 2016 were not paid for this reason. If, for example, someone had already had breast cancer when they joined the scheme, no claims would be paid for any future occurrences of cancer. A claim could, however be made for an unrelated condition such as a heart attack.
* The employee tried to claim for a condition that was not covered under the policy. One in nine (11%) of declined claims in 2016 were not paid for this reason.
Where organisations clearly communicate the benefit to the employees, using insurer materials, they are afforded the most protection against disputed claims. This is easiest with voluntary or flexible benefit schemes, as annual changes and lifetime events provide the opportunity for such ongoing employee communications.
The ability to increase employee engagement with the benefit should not be underestimated and support services are not only a key part of the employee decision-making process but can also be quantified as part of total reward statements - as an indication, Canada Life has a £205 annual value per employee from its GCI support services.
Paul Avis is marketing director at Canada Life Group
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