Challenges may vary. Runners may come and go as some fall and others enter the race. However, the group life insurance market is still one of the most cut throat and price competitive in the protection industry, writes Owain Thomas
It’s been a rollercoaster year for the present field of group life providers, with barely a dozen providers operating, but for those people working in large corporations and small to medium enterprises (SMEs) of between 50 and 200 employees, a life insurance plan is commonplace, if not downright expected. There is one audience though, that seems to be being slightly ignored.
The one-man band.
The genuine small business with less than five staff accounted for over 4.3 million employees in the UK in 2008, according to Department for Business Innovation and Skills figures, and while that number may have dropped through the recession, it’s still a sizeable market. But Roy McLoughlin, an IFA with MasterAdviser, believes providers could do more to help this area.
“They should think about smaller companies,” he says. “There are so many businesses with less than five employees in the country and if it’s set up in the right way they get the benefits tax free. Life insurance is important to people, particularly if they have families, and it’s a relatively low cost benefit to have.
“Employers are worried about costs, but one major cost is recruitment and retention of staff, which this can help with,” he adds.
Being well versed in the group market, McLoughlin is acutely aware of the same old problems recurring time and again, believing the administration side often lags well behind other aspects of business. He also notes that some providers have modern income protection (IP) systems, but archaic life ones.
“Renewals are a problem despite what some people say,” he argues. “It can take months to come through, and it’s quite a difficult conversation to have with a client telling them that. As an adviser I have to pro-actively sell it, and there are some training issues here for teaching small IFAs about group life and how it works.
“I think people just need a bit more help on our side of the fence and maybe a bit more of a PR campaign,” he suggests.
Recession-free product area
An increased interest in the product during the last few months is positive news for the market, and with rider benefits such as employee assistance programmes (EAP) and second medical opinion services being more frequently available, McLoughlin feels “it could potentially be a recession-free product area.”
“Unfortunately, a big negative was Aegon’s exit from the market,” he says.
“That’s quite bad as most people quite liked them, and it was a shame to see such a well respected provider pull out. The market needs some new additions as it’s dominated by two, and that’s wrong in my book. There should be more players there,” he concludes.
Coincidentally, just a few months after Aegon departed the scene, in stepped Ellipse, part of the Munich Re group. The newcomers have kept a fairly low profile since their arrival, progressively rolling out to a few advisers with their initial group life policy aimed at the large corporate market. (Due to the staggered launch, Ellipse do not appear in the whole of market tables.)
They have since added a critical illness (CI) plan, with an IP plan on the way, and expect it to be fully available to all IFAs around the turn of the year.
John Ritchie, CEO at Ellipse, is targeting many of those weaknesses McLoughlin identified, and, after a long build up, is glad to finally be in the game designing and building systems to be more capable.
“There’s no paper in our world,” Ritchie explains. “We are looking at each process and seeing if can we do this more efficiently, cheaper, faster and take some operational risk out of it. The aim is to speed up all of the processes of getting cover, using one big web portal. But we’re not going direct, there’s nothing further from truth. We do nothing that an adviser can’t see,” he adds.
Despite it being early days, Ritchie has had a very good reaction to this approach, as over 80% of his advisers approve of the direct communication between provider and client, understanding that it frees up their time from general admin tasks. Another target is the drawn out renewals process, where currently the holding provider gets final offer for a renewal premium, something he believes eliminates any motivation to improve their systems and processes.
“A couple of IFAs said ‘we are going to stop that, we don’t want our renewals to take four or five stages as it costs clients money,” he says.
“Some are already doing this, and think they are getting good prices and a more efficient process. The market itself is very competitive on price, and some say it can’t go one like this, but that’s been said as long as I have been involved in this business,” he adds.
While Ellipse have started with the large corporate sector, at the opposite end of the scale is 20-year group life insurance veterans Lutine Assurance, which aim solely at the SME market. For smaller providers working to the SME audience, the recent recession has been testing, but Mark Osman, development manager at Lutine, feels the worst may be over and is looking on the brighter side.
“The last 18 months have been very challenging, but we have had a fair amount of success in bringing in business,” he says.
Keeping heads above water
“I do feel that 2010 is a time of opportunity and also a time to consider more about developing new business going forward. We’re not out of the woods yet with the economy, but we have to look at the opportunities in that environment. The one message I get back from clients is they are keeping their heads above water, which is important.
“The only fundamental thing I hear is businesses are looking to different ways of doing what they have been doing for the last few years, and are trying to find ways to be more customer efficient,” he adds.
The element of churn – whereby groups simply renew their policies with a different provider – is a major concern for many in the market, and has become particularly prevalent during the last 18 months as businesses seek to trim their overheads without cutting staff. This has been noted by Osman, although he is aware that the larger economic conditions play a significant part in this process.
“A large proportion of business that we have won is in churn from other insurers, and there is always going to be an element of that,” he explains.
“The market is fairly robust despite contracting in terms of the number of employers out there. I also believe the corporate protection business has been fairly stagnant for a while, so there needs to be a change in terms of things we offer and how we offer them. “Whether big providers will offer that I don’t know, but a lot of companies are just battening down the hatches and working through the current market place,” he adds.
Overall though, Osman is confident of growth in the next 12 months, believing that while it will be a challenge, it is up to those companies who want to take up the challenge that will make a success out of the opportunities available in a very cut throat market.
For the giants in the protection sector, it is possible to get a far wider snapshot of what the underlying trends are, and according to Glenn Laming, group protection sales director at Legal and General: “Last year was a year of frantic quote activity.”
“We had a lot of mid term renewals and a lot of focus on the bottom line, making sure that employers are paying the lowest possible rate for their cover,” he continues.
“We are now wondering if other intermediaries will move to more frequent renewals. It’s a case that advisers have to judge what’s important this year. I think it will be an interesting 12 months ahead with hopefully a lot more focus on scheme design, such as the deferred retirement age.
“If the retirement age does increase it will put pressure on employers in other ways than would normally be expected,” Laming adds.
Speaking of pressure from new challenges, it’s interesting to note that Laming understands some of the industry’s weaknesses and appears keen to address them. He has also welcomed the ideas that new entrants can bring.
“Group risk sometimes suffers from being old fashioned,” he says.
“But I think we are hearing the message from new comers that now they want to challenge the long established players. We’re really interested to see what new initiatives Ellipse and others are bringing into the market place. It’s not going to be easy for them to take market share, but maybe the technological advancements that are being offered will be interesting.”
However, Laming does have a word of warning for debutants.
“It is an extremely competitive market at present and they need to have reasonable expectations and pricing policies. In the group life market the price offered is a very significant part of the decision,” he concludes.
And all too often, that’s the bottom line.
