Group protection is under significant price pressure. Paul Avis explains why and offers a few suggestions to support clients who may be shocked by the cost.
And therein lies the problem – the workforce is still continuing to age, albeit at a lower rate than previously. Between Q1 2009 and Q1 2011 the average age increased by 0.8 of a year over a typical two-year rate guarantee period and this appeared to be the height of the age increases.
While on the surface this sounds like good news, it is still compounding the increases in previous periods and the “slowing down” rate is both business sector and scheme size specific. In simple terms an ageing workforce is likely to increase group risk premiums.
Why is the workforce aging? At a basic level, with fewer younger people being recruited, the workforce will age. While we have seen some shoots of recovery, it is likely that this will continue, as youth unemployment was reported at close to 1m people in late 2012, with 20½% of 16-24 year olds out of work. It seems simple – until “UK PLC” starts to recruit younger people, workforces will continue to age, leading to greater claims incidences and higher premiums.
In addition, the number of people of state pension age and above in employment has nearly doubled over the past two decades, going from 753,000 in 1993 to 1.4m in 2011.
Put this alongside the fact that just over a half (51%) of older workers are in small organisations of fewer than 25 employees and you can see why the small scheme segment is ageing at a greater rate than the larger segment, perhaps driven by a lack of recruitment and the need to retain more experienced staff. This is another clear trend that insurers have to consider when pricing group business.
Demographic challenge
Another by-product of our changing society is that people are living longer. The fact is that over the last 50 years (1960-2010) the average life span in England and Wales has increased by around 10 years for a man and eight years for a woman. The average life expectancy of a 35-year-old now is 100 years of age.
There is a belief that life expectancy will increase by about 20% each decade.
Sounds like we will be leaving work younger than we were when we started.
Whatever the theory, people are most definitely living longer and the total number of centenarians is projected to rise from 14,500 in 2012 to 110,000 in 2035, which shows just how different the world will become over the next 25 years.
As an insurer we have to question who we are covering and how long you will have to pay benefits for them, so again there is a knock on effect for group insurance.
For DISP beneficiaries, it means that insurers may have to continue to pay them pension benefits for much longer than used to be the norm.
