Selling group products on price will leave advisers open to client poaching, writes Paul Avis. So, are group risk advisers operating a smart business model?
Between 2006 and 2010, average group life assurance rates fell by about 19% and by about 37% for group income protection (GIP). In 2010, we saw 15,000 more employees covered for GIP over the previous year and yet the market reduced by more than £50m annual premium.
We have seen a soft market, with brutal price cuts to gain market share, over a long period. But from an adviser perspective, the need to chase the cheapest rate has naturally had a knock-on effect on the commissions that the insurers pay. Why has this happened?
Firstly, the adviser is the customer advocate and it is incumbent upon them to get the best ‘deal'. But this is often skewed by purely reflecting the price. For group life, which is heavily commoditised and comes with limited ‘value', advisers could still consider areas such as financial strength and the insurer's ability to administer the scheme.
With 4% standard commission, multiple reworking of accounts or incorrect policy documents can erode any potential ‘profit' very quickly. In addition, it has to be worth assessing what extra services there are. But what price added value? Is a 3% to 5% premium difference enough to ensure claims are paid promptly, accounts and policies are accurate, and some employee/family support is available?
Doing your homework
The question for GIP is, are advisers really being customer advocates when price is the determinant in this market? Some GIP insurers have invested heavily in vocational rehabilitation services which, while helping the employer to support the Equality Act 2010, can also help to limit future premium increases.
Is it perhaps true that a lower price today will ultimately be a false economy with a worsening claims experience? Employee assistance programmes (EAP) can enhance GIP value and they should be used on a daily basis if they are properly communicated. Where non-insured employees are also offered access, the value grows significantly.
Perhaps reviewing a current EAP provided by the employer, with one included within a GIP contract, could be a consulting opportunity as well as a potential cost saver for the adviser's clients. Research from First Assist showed that 52% of service users who had received counselling would have needed to take time off without EAP support. As absence management is one of the key purchasing criteria for GIP, this supports the employers' requirements.
