While the individual sector has filled column inches recently for not selling as well as expected, the group critical illness market has shown signs of growth. Lucy Quinton reports Click here to download pdf
The group critical illness (CI) market has, surprisingly, not suffered a bout of depression over the past 12 months, but, instead, has enjoyed a fruitful year while its counterpart in the individual sector has made most of the headlines.
According to the latest statistics by Swiss Re, premiums in force as of 31 December 2005 amounted to £28,191,708, while, 12 months later, the premiums totalled £34,798,472 – an increase of £6,606,764. The reinsurer's findings also show the number of schemes in effect as of 31 December 2006 as being 1,884. This is an increase from the previous year, which showed only 1,816 policies in force. Further demonstrating this is the fact that in 2004 there were only 1,858 policies in operation.
Simon Bailey, head of marketing, employee benefits at Aegon Scottish Equitable, attributes this surge in the market over the last year to "a move among employers to enhance their benefits packages by offering a more flexible benefits scheme".
Agreeing with Bailey, Sue Elliott, principal consultant at Watson Wyatt, says this is a major area of opportunity for providers. "The main opportunity is flexible benefits where employees can pick and choose what suits their needs better. For example, single people with no dependents would probably prefer CI to life cover," she explains.
Bailey adds: "We expect to see a continuing move by employers to introduce or enhance flexible benefit schemes."
He continues: "CI should be a long-term beneficiary of the extension of flexible benefit packages, as it offers valuable protection to families at a time when they really need to focus on health issues, rather than finances".
The market is rather cautious not to trump its own success in the group CI arena. Baileys says that, in terms of new business, "the market was relatively static in 2006. This was probably due to employers focusing on the impact of the pension simplification legislation and, later on in the year, when they were dealing with the consequences of the age discrimination legislation".
Elliott, too, is cautious about how well this market has done. She adds that there is low penetration in this market because "it is the lowest on the ladder for group risk protection benefits. Its greatest success will probably be in the flexible benefits arena". Overall, she says there are still only a few players who operate in this market.
Despite this apparent success over the past year, consumer understanding of this product remains the main obstacle. Bailey says: "There has been much press focus on declinature, which can potentially dent consumer confidence. However, the reality is that any declinature is far outweighed by the level of claims paid. In addition, many believe they are covered for CI under their mortgage protection or other insurances but this is very often not the case."
Publicity
CI overall has had extensive amounts of publicity over the past year with the Association of British Insurers' (ABI) new CI definitions coming into effect last month. Bailey remains optimistic about the effects this will have on the group CI market: "The new CI definitions will provide better product clarity, which, in turn, should increase consumer confidence. It also provides opportunities for providers to stand out by really adding value in other areas, such as the additional services that they provide to employers and employees."
However, Elliott says, while providers will implement the new definitions to be in line with the individual CI market, the group CI market only tends to cover the core conditions. Additionally, group risk has the ability to change rates at renewal time as and when experience improves or deteriorates, so this market does not have the same issues with respect to future proofing as the individual sector. It is for this reason that Elliott and Bailey are reluctant to assume that the ABI's new CI definitions will give incentive to employers to take out group CI.
Bailey adds: "Employers are more likely to be influenced by demand from their existing and prospective staff to offer excellent benefit packages. The individual CI market is far larger than the group market, proving that CI is popular." Aegon Scottish Equitable anticipates, he says, that employee-driven demand will result in more employers offering CI schemes.
What employers are looking for includes products that offer good value for money, good free cover levels and free children's cover.
However, Bailey says employers are enticed by products that provide more than just financial support. "A critical illness can have a huge impact. It impacts the individual, their family and also their colleagues. It can also be very difficult for the human resources staff, their managers and the employer to know what is best for their employees under the circumstances," he explains.
In order to help employers deal with this difficult situation, Aegon Scottish Equitable is working with Red Arc Care Advisory Service to give CI clients access to the support of a Red Arc personal nurse adviser, Bailey says.
Despite him being cautious about the positive signs shown over the last 12 months, Bailey is far more certain of a positive few years ahead in the market, adding: "We expect the market to continue to grow over the next few years, with growth coming from the flexible voluntary market."
However, Elliott is not so forthcoming on the optimistic outlook, preferring instead to err on the side of caution. She comments: "I don't think there will be much change in this market, because the group risk market has greater issues to address in its core product offerings." The greater issues she refers to include improved levels of service, age discrimination following the legislation implemented at the end of last year, the implications of A-Day and the ramifications of the Budget towards pension term assurance and Incapacity Benefit changes that are due out in April 2008.
However, while Elliott suggests this is a low priority for the group risk sector, she, nonetheless, points to the group CI offering as an important one for the market. She believes it is needed to complete the protection offering in the group risk market but urges that because it is not seen as a core product, "it needs to be marketed differently", such as with the use of flexible benefits.
Bailey agrees with Elliott that flexible benefits are the way to move forward in the development of this product for the market, though he is more outwardly optimistic, adding: "We view this market positively as we see the potential for growth through the continued adoption of flexible schemes among the larger employers."
The group CI market has been the quiet underdog of the group risk sector, especially when comparing it to its counterpart in the individual sector. Yet despite people brushing it to one side, it has quietly done very well over the last 12 months. It also looks set to continue in a similar fashion should the industry maintain its thinking that it is an essential product offering to complete the group risk suite of products and is important as it offers valuable cover to families at a time when they really need to focus on health issues, rather than on finances.
