What is the point of Life companies? Much of the public think of them as parasitical, yet, as John Pollock explains, they do much more for the greater good than just insure people
What is the point of life companies? This is a question to which one might immediately answer; ‘to insure people against unforeseen events’ or ‘to provide financial assistance in times of need’. Those answers are not wrong – far from it. It is just that life companies are so much more than simply organisations that take on risk on behalf of individuals and companies. It is worth outlining why life companies have a vital role to play, right from the heart of the family home to the boardrooms of UK PLC.
Let us look at the obvious factors first. Insurance is peace of mind or a financial safety net. The public can either choose to pay for that peace of mind or take the risk that nothing will happen to them. This is the attitude that many advisers’ clients may well have, in the sense that some are risk averse and will take the advice as given, whereas others simply don’t want to commit to another monthly direct debit.
The reasons for taking out protection are very clear and all advisers are well used to hearing them, however, the fact is, our economy and the businesses, households and individuals which it comprises could not function without insurance. The reality is that people get sick, they have to take time off work, sometimes they die, and in all cases this usually has a severe impact on people’s finances. Few people in this country have enough savings to last them more than a couple of months if they had no salary coming in so insurance is crucial to avoid financial disaster.
Just take a look at the statistics – according to the Association of British Insurers’ figures, the insurance industry pays out £18m pounds PER DAY on life and disability claims. That is a huge amount of money in anyone’s book. We are talking about serious financial help going to millions of people. Add in other types of insurance and that figure rises to £270m per day.
Next we come to the impact that life companies have on society. If you think about it, individual and group protection are a ‘force for good’. A fully protected individual is less likely to need to survive on benefits, get into debt or rely on friends and family for money. The key point here is that protection doesn’t just help the policyholder, it also helps the people close to the policyholder, as well as the UK population as a whole. The ‘reflected glow’ of protection is somewhat intangible, but is no less significant.
By reducing the burden on the State, we are relieving the State of potential costs and saving money for taxpayers. Speaking of tax, life companies are major taxpayers and employers, particularly in the communities in which they are based.
Life companies take social responsibilities, very seriously indeed. Life companies are involved in a huge number and variety of projects, right from grass-roots to large international projects.
Going from communities to boardrooms, life companies are very, very significant investors in ‘UK PLC’ acting as stewards for the monies received from customers, whether those customers are individuals, corporations or institutions. These funds provide a significant investment of capital in the UK economy, and with this stewardship comes enormous responsibility.
An invisible force
Take the work that is done by the investment management arms of the life providers in the area of corporate governance. This is a force that is pretty much invisible to the outside world, but directly affects everyone who is a shareholder, customer or stakeholder in some way. Life companies are in a position to enforce proper standards for companies to operate under to ensure that they behave in the right way.
Our recent work championing pension fund investment in infrastructure projects was instrumental in securing the announcement of a new Green Investment Bank which will help lay down an economic infrastructure for prosperity over coming decades.
Life companies have also been successful in introducing sustainability into the commercial property sector, which looks at issues such as waste, energy consumption and carbon emissions. As major landlords in the UK, life companies have a responsibility to ensure that new build projects meet sustainability standards, but that is the easy bit, in a way. The hard bit is ensuring that existing properties that are being refurbished meet the strict standards of responsibilities.
As well as positively affecting the way that companies operate, life providers can, through group risk products, directly help and support staff. Employee benefits are particularly interesting in terms of the role that they play in keeping people ‘on track’ through their wellbeing. It is in a company’s interests to keep their workforce healthy and productive and this is where group risk had far-reaching benefits beyond simply paying out money when people need it most.
For example, employee assistance programmes which provide access to online and telephone support to help deal with life’s challenges. From financial stress, personal crisis and relationship problems to development at work and work related conflicts. L&G, for example, also work with the British Heart Foundation to encourage activity and healthy eating as part of a healthy lifestyle.
Group risk provides employees with income protection, critical illness and death in service benefits in case the worst should happen. But it is just as much about prevention as it is about providing money when people need it most. Keeping employees happy and healthy can be financially beneficial for an employer and could certainly minimise the claims made.
Another example of where this works in practice would be tackling stress in the workplace. Group risk providers can offer employers corporate and individual stress risk assessments as well as stress training.
The last area worth highlighting is the sector’s expertise in risk management. Life providers spend a lot of time looking at trends in things like longevity, health and retirement planning. We, as an industry, make a positive contribution towards understanding a broad range of societal issues and we share our insights with academic and policy-makers.
Positive impacts
So, life companies have a positive impact on individuals, families, communities, taxpayers, shareholders, academics and employees. The insurance industry as a whole, via the Insurance Industry Working Group (IIWG) has been asked by the Chancellor of the Exchequer to consider ways of enhancing the role of the UK insurance industry in view of the medium to long-term challenges and opportunities facing the sector.
The IIWG has agreed a vision for the insurance industry in 2020. It wants the UK to be the leading global insurance centre with an unsurpassed reputation for excellence, a deep and constructive relationship with its customers and a close and effective partnership with the Government.
To quote Alistair Darling directly from the IIWG paper: “Insurance is an industry in which Britain has a global lead. Government and industry must work together to build on this advantage to ensure a thriving insurance sector creates skilled jobs all around the country; contributes to exports and growth; and plays an important part in building Britain’s future.”
Whether you are a customer or not, there are significant direct and indirect benefits to the role that life companies play. This force for good permeates society as a whole and life companies are an intrinsic part of the economy and economic recovery.
John Pollock is executive director, risk at Legal & General
