There has been much to smile about this year in the group life market, but as Owain Thomas discovers, there is still one problem that could see advisers on the hook for millions of pounds in uninsured liabilities
But for some, it is still the much needed technological advancement that is most welcomed. John Ritchie, CEO at Ellipse, is one of those, but noted it would also impact on how advisers needed to operate their businesses.
“From our point of view, there are two big things happening in the sector: the modernisation and automation – and subsequently advisers’ realisation that their processes have to adapt, too.
“There is a modernisation and automation movement in group life that just wasn’t there two years ago, or those people doing it were the exceptions. Data needs to flow quicker as the process is more efficient when it does.
“When you’re working closer to the date of current information, it works better. But if you do it late, it gets messy and expensive – that’s when the operational risk seeps into the whole process.”
This, Ritchie argued, meant the current review process was unsustainable for brokers and necessitated a change in approach. He explained: “When they review the group life rates, a lot are saying ‘You can’t do the same thing for a 250 life scheme as you would for a 2,500 one because the client will not pay for it’. So there’s an interesting earnings pressure on advisers and distributors because they’re all getting paid for consulting activities, not intermediation.
“Intermediation for the sake of it, such as handling data, medical information when the policy is in force and just having that extra pair of hands doesn’t add any value and actually can add operational risk.
“So post-Retail Distribution Review, I think they’re going to look for consulting fees for the genuine consulting activities and a low commission retainer. I think that’s the way the mass of the market for SME schemes is going to go.”
GRID: A BRILLIANT JOB
It is surprising that an issue as significant as the group risk industry’s exemption to the abolition of the default retirement age is now seen as such a secondary one.
But perhaps it is safe to assume that had this opt-out not been secured, a great deal more energy since the announcement would have been expended on its effects.
Certainly there was plenty of nail-biting at the time, but as Ritchie acknowledged, the decision was a sensible one following hard work within the industry.
“The exemption makes a lot of sense. It was a brilliant lobbying job by Grid and everyone involved should get huge credit for it. As a way of quietly and gently explaining the unintended consequences of something, it should be used as a case study.”
These sentiments are echoed by Shane Kinsville, head of sales at Bupa Health Assurance (BHA), who suggested that the exemption now gave insurers the opportunity to look at other areas, such as Solvency II and the European Court of Justice (ECJ) ruling outlawing gender-based pricing. He also took time to reiterate Kerr’s earlier concerns about the lack of employer awareness of the A-Day changes.
However, he believes the technology revolution is key to the market and that self-administered flexible benefits solutions will prove increasingly popular for employees.
“I think flex is going to be a growing market this year and next,” he said, “especially with the National Employment Savings Trust (NEST) coming in. There’s going to be a lot of activity in the end member advice area and workplace marketing.”
The two macro issues of Solvency II and the gender pricing exclusion, both originating from Europe, could have significant and opposite effects on the group life market. While Kinsville predicted that the extra capital requirements for insurers of Solvency II would see a further hardening of – and even increase in – rates, the ECJ ruling could have a motivating factor for employers.
“If death-in-service pension rates go up, there may be a move to lump sum payments. With the EU Gender Directive, where annuities for death in service pensions have to be bought, that’s going to impact on pricing,” he said.
“With interest rates relatively low and annuity rates being lower, the purchase price to buy the income is going to cost a lot more than the equivalent lump sum. The lump sum has got to be paid for and usually insured, and that’s got to filter through.”
For BHA, the group risk arm of the provider recently purchased by Resolution, Kinsville reveals that only its group income protection (GIP) product is likely to be significantly altered.
“We always will look at bespoke offerings, but fundamentally our product design across all areas will be the same. The only one that’s going to be changed is the synergy of Friends Provident’s GIP and ours, which will be relaunched as Friends Life during the year.
“Friends Provident is prominent in the IP side, so the intention is to have the suite of benefits we’ve got and then look at the best proposition,” he added.
But before this comes a deadline that, it seems, all advisers with group life scheme clients should be aware of and proactively engaging with. The potential consequences for ignoring it do not bear thinking about.
