Nicola Culley asks if the introduction of auto-enrolment will deliver new business to the group life market or if employers burdened by the extra costs will cut back.
Competing theories
There are two big theories kicking around the industry regarding auto-enrolment impact on group life. One is that auto-enrolment is a huge opportunity that will mean lots more employers coming into the market. The other, is that to save extra pension scheme cost, employers will cut benefits spend and auto-enrolment will work against the market.
GRiD research showed 56% of employers in 2012 said “yes” when asked if they would consider implementing group life for employees alongside pension auto-enrolment arrangements. It showed an increase in sentiment towards the product compared to 53% in 2011 and 49% in 2010.
Paul White, client director at Enrich Employee Benefits, said: “With the bigger companies that have implemented auto-enrolment, we are seeing they have recognised the extra cost of existing group life schemes, in that more people are now linked to it through the new pension scheme. But they are keeping the schemes in place and the market is holding up well.
“My expectation is that overall there will be a net gain in group life insurance but there will be shrinking in other benefit areas such as the more expensive group income protection (group IP) and private medical insurance (PMI).”
In the bigger picture, White said, the coming years would show a continued move away from old defined benefit-style arrangements reflected in group schemes. For example, the continued demise of death-in-service pensions benefits were giving way to group life lump sums.
“The other thing bumbling along in the background is that group life can only be written to age 75. It has been increased from 70. But as the population gets older this may need to be looked at again,” White added.
James Walker, technical manager of group at Legal and General, said the early signs for group life among the large employers – against the backdrop of auto-enrolment implementation – were “quite good”.
He said group life appeared to be holding up well but that the real impact would show as the smaller companies started to come through.
“The one thing to bear in mind is that when it comes round to the smaller guys, it is quite possible that the extra cost of auto-enrolment could hit them quite hard and this could work against benefits and group life,” Walker said.
“It is hard to say how it will go. But life cover is relatively cheap to provide so that stands in its favour. It remains to be seen how the small to medium companies manage the change.”
He added, even if employers did start cutting benefits to manage cost, it was entirely possible that group life would be the one to survive it, given its comparable low cost appeal. Group IP is the one that is more likely to be cut back, White said.
According to Legal & General, early signs post-auto-enrolment also show spurts of growth in group life new business. But White is cautious.
He said: “This is only the big employers at the moment and the amount of those that are holding on to established schemes is quite positive.
