The industry knows group risk benefits are valuable, but does anyone else? The sector needs an image boost to thrive, says Peter Fenner.
The value of group risk benefits to individuals, companies and society is no secret to those of us within the sector, but outside it sometimes seems that it might as well be.
While the profile of pensions has benefited from the eternal public debate about what can or should be provided, to the extent that some groups are even ready to resort to industrial action to protect their pension rights, death and disability benefits go largely unnoticed.
But this is crazy. Not just because the actual benefit to those people in receipt of claim benefits is vast, but also because if group risk insurers and advisers want employers to provide these benefits, it should be clear where their value lies. This argument has to be made at both micro and macro levels.
Taking the macro side first, group risk benefits are of value to society because they reduce the number of people suffering financial hardship and, therefore, who need to turn to the state for financial help.
How much is this worth to society? ‘A lot’ is one answer, but a terribly vague one. It would be much more useful and powerful to quote an actual figure. -Unfortunately, and to what should be our collective embarrassment, a figure is not readily available.
Getting the message across
If looked for, there are some difficulties in arriving at a definitive figure. Some benefits are paid as lump sums, but others as installments of income, so perhaps the figure should include a capitalised equivalent of the income benefits.
This then begs the question: capitalised on what basis? Should benefits counting towards the figure also include those relating to claims that have been submitted, but where benefits have not yet been paid?
There are no doubt other niceties that could come into play, but none of them really matter. All that is really needed is a decent estimate, arrived at using a basis that is reasonably consistent and sensible. How about the actual amount flowing from insurance company bank accounts in respect of group risk claims and to how many people?
Surely Group Risk Development (Grid), the body representing the sector, could organise the gathering of the information from its members, and it would find the resulting figure useful in its work of promoting group risk and lobbying government on the industry’s behalf.
Notwithstanding the lack of this statistic, Grid itself is starting to get the message across to the government, scoring a notable success in securing the exemption for group risk benefits from the rules which otherwise outlaw the application of a default retirement age (DRA).
Furthermore, the government seems to be -increasingly acknowledging the importance of employer-sponsored provision in getting people back into work.
In March this year, Welfare Minister Lord Freud spoke at a conference held by the Stockholm Network and posited the notion that employers would be better off taking out income protection rather than providing statutory sick pay. This highlights a notable shift in attitudes.
Probably the single biggest factor in shaping the delivery of all kinds of benefits – and insurance product design, generally – is government policy, so having public policy makers onside is vital. Indeed, a lack of -engagement with the government can have costly and time-consuming consequences for the industry.
Up until the gaining of the DRA exemption, there had been repeated instances where policies or practices had to be redesigned to cope with the -unintended -consequences of legislation aimed at addressing issues unconnected with the provision of benefits.
Grid’s success in lobbying may have come just in time, as the coalition’s attempts to rein back public spending and reshape how benefits are to be provided will inevitably have a massive impact on the sector.
The existing plans – conceived by the previous administration, but retained by the current one – to introduce the National Employment Savings Trust (NEST) already show the intention to move benefit provision away from the state and into the hands of employers and individuals.
