New kid on the block

clock

Standing in the shadow of two bigger brothers can be an intimidating place, but being the runt of the group risk family isn't proving such a bad thing for the group critical illness (CI) market lately, writes Owain Thomas

Over the last year the group CI market has seen the withdrawal of Aegon (who left the entire group risk market last summer), yet it has also welcomed two arrivals in new-starter Ellipse and insurance giant Aviva.

And even more promisingly, according to this month’s annual Swiss Re group watch report, it was the only one of three sectors to see premiums received increase in the last 12 months.

So perhaps the opportunity is available for it to grow out of the shadows of the group life and income protection (IP) markets.

This mood of greater confidence is certainly reflected in the group watch report, with 31 of its respondents expecting the market to increase throughout the coming year and only 11 predicting a decrease, compared to 14 positive and 18 negative responses in 2009.

Ron Wheatcroft, co-author of the report and technical manager at Swiss Re, explains the reason for this lies mainly in the flexible benefits arena.

“In many ways CI is a very different proposition from life and IP on the employer sponsored side, because a significant amount is from flexible benefits,” he says.

“The growth is not spectacular but it’s had a couple of very good years. The number of schemes is pretty much identical to last year, and although the number of lives covered dropped 3.9%, premiums received were up and the level of benefits insured also increased (by 3.1%). It’s primarily down to flexible benefits,” he adds.

The figures illustrate this trend clearly with in-force group CI premiums written on a flexible benefit basis increasing by 9.5%, and the method is now responsible for £23.6m (48.7%) of the total annual premiums, again an increase from the previous year (£21.5m, 47.4%). With less employer involvement in many cases, it’s often thought of as good for employees for whom group life is less relevant.

“It does show that people see the simple appeal of this solid and unspectacular product, and how fast it will grow is going to be driven by if employers continue going for flexible benefit options,” Wheatcroft continues.

“The market is very competitive, and that competitiveness is putting pressure on employers to reduce costs and intermediaries have seen downward pressure on prices.

“Overall, the market predicted falls across all three product lines at the beginning of 2009, and although two out of three did fall in terms of premium revenue, in terms of benefits covered everything has increased, and that’s a measure of competition which is good. More people getting more cover arranged, that’s good,” he concludes.

It appears that by all accounts, flex seems to be an effective way to offer this benefit, with one positive being the ability to buy cover in steps people can be comfortable with, allowing them to do it on a basis of what they can afford.

There are, however, drawbacks to the product noted by some, and with the indication that premium incomes are increasing, but not populations or scheme numbers, some suggest it’s people paying more for their cover.

Another criticism identified to explain its lack of depth in the group market is lack of benefit for employers who supply CI to their workforce, who receive very little benefit back for supporting fully paid schemes.

Alex Pickard, a senior consultant at PMI Health Group, has found this throughout his experience working with employers, and explains that to them it doesn’t have the same value as life, IP or private medical insurance (PMI).

“The growth opportunities are around flex and voluntary benefits, there’s probably some mileage in that, but I’m not convinced that employers are running out to offer fully funded schemes,” he says.

“Certainly from an employer’s point of view it won’t help them to control absence management in the way that an IP policy or something like PMI will, and I think as a result they probably don’t see as much value in it as other benefits.

“You might see a scenario where an employee uses the lump sum to pay for some medical treatment they wouldn’t have been able to get easily on the NHS which might shorten their time away from work, but you can’t force them to use their benefit in that way – it’s up to them what they do with it,” he adds.

That is not to say Pickard feels the product has no value whatsoever. Far from it.

He suggests that standard group CI cover is a big improvement on some of the mortgage bolt-on products and people have broadly not had the issues that existed with the individual side.

“It’s a more robust product than that and people will find it useful,” he says.

“The only pitfalls with group CI itself are the pre-existing condition exclusions. No matter how many times you explain that to people it does bring about confusion.

“But it’s encouraging, in terms of the development of the market, that somebody like Aviva has come in. Anything that can keep it fresh and ticking over is a good thing,” he adds.

Like other providers the new arrivals will have to rise to the challenge of differentiating themselves from the other. However, there are issues that all insurers in the sector should address, such as the number of those pre-existing exclusions and the perception that it’s a very hard product to claim on. For that, Pickard suggests the CI providers should look to the other pillars of the group risk market for inspiration.

“Its not only that if you’ve got a pre-existing conditions clause you’ve also got a two-year related conditions clause with most policies, and that doesn’t do the product any favours,” he says.

“And, you do hear the comment sometimes that they are just looking for a reason to not pay the claim by trying to link it in to everything under the sun, so ‘sorry you’ve already had this and can’t claim for it.’

“There have been improvements in certain areas of group risk such as medical underwriting for life and IP which has become more customer focused and improved the products significantly.

“But I think CI is a little bit behind with that and until they change that model there will always be people who think ‘is it really worth it?” he concludes.

So what are the existing providers doing to address these concerns and the challenges raised from new arrivals in the marketplace? Bupa is one of those to have benefited from Aegon’s departure and after a strong year, the provider says it has seen an increase in market share.

Catherine Baxter, group risk product manager at Bupa, believes employees prefer schemes with pre-existing condition clauses.

“Our flex schemes can be underwritten or use pre-existing condition exclusions, but the exclusion ones are definitely by far the most popular,” she says.

“There’s very little interest in being underwritten and most go for pre-existing terms so they can get the cover in place.

“And as for more players coming into the market, I think it’s a good thing. Although our share is growing we obviously have to respond to things that happen, but I think we’ve got a good solid proposition,” she adds.

The provider has recently added the Best Doctors service to its offering, and while there is a trend for many of these benefits to be bolted-on, Baxter thinks they should be used appropriately, rather than thrown in randomly.

And with price the often present deciding factor, the challenge of not simply churning over the available schemes annually is one that is a concern to her.

“Price is always important, but from our point of view we have good stringent service levels and integrated those into our business and on a workplace basis, hitting them a huge amount of the time,” she says.

“We publish our standards and they are available for intermediaries to see because we recognise that the service we provide impacts on the service intermediaries provide.”

It is only fitting that one of the new competitors should voice their views on what the market holds in the future. It appears unanimous that flexible benefits are the way forward for group CI, but what else can be

Steve Bridger, head of group risk at Aviva, says it was down to customer demand that it entered group CI, all of which is part of the provider’s plan to dominate the protection market as a whole.

“Absolutely we want to dominate protection,” he says.

“Our stall is particularly clear, we accept that everyone has protection needs and we can help them.

“In the first month we issued more quotes than I thought we’d get, and now we have the complete set of products (group CI added to IP and life), so it’s how we integrate those, which may find us using technology a lot,” he adds.

Aviva are not the only new boys in the group CI town, but that does not faze Bridger. He suggests these new players add credibility to the market, and although they may view the solutions differently, all understand the customer needs.

“I think it’s really good seeing people come in but if we can drive the group risk market we can see real growth,” he says.

“I‘d like the new government to help through tax or even just by raising awareness, not through scare mongering but just saying how valuable these propositions are, raising the profile that we deserve.”

Bridger concludes with a call to arms for the entire sector to address the issues around churn, which he says are starting to come through.

“There’s a different feeling from providers that maybe last year’s pricing was not in a good place and that we are not really helping our customers if it’s just a price game,” he says.

“We can raise our game and it’s down to every provider to egg each other on.”

With hope that the private sector economy may be over the worst of the recession, now may be the time for the industry to respond.

[asset_library_tag 1407,View survey results here]

More on Critical Illness

Aviva boosts critical illness offering

Aviva boosts critical illness offering

Includes elements of AIG’s proposition

Jaskeet Briah
clock 18 November 2024 • 3 min read
FCA launches market study into pure protection

FCA launches market study into pure protection

Broad remit for investigation

Cameron Roberts
clock 28 August 2024 • 2 min read
Core vs comprehensive CI

Core vs comprehensive CI

Question of quality

Alan Lakey
clock 13 August 2024 • 2 min read

Highlights

COVER Survey: Advisers damning of protection insurer service levels

COVER Survey: Advisers damning of protection insurer service levels

"It takes longer than ever to get underwriting terms"

John Brazier
clock 12 October 2023 • 5 min read
Online reviews trump price for young people selecting life and health cover

Online reviews trump price for young people selecting life and health cover

According to latest ReMark report

John Brazier
clock 11 October 2023 • 2 min read
ABI members with staff neurodiversity policy nearly doubles

ABI members with staff neurodiversity policy nearly doubles

Women within executive teams have grown to 32%

Jaskeet Briah
clock 10 October 2023 • 3 min read