Group income protection (GIP) hasn't seen a rush as a result of auto-enrolment as yet, but with insurers continually innovating, it could soon be on everyone's radar. Fiona Murphy finds out how the market has performed over the past year and asks about prospects for growth.
“When it was first announced, I was relatively sceptical. I thought lots of employers would be cutting other benefits to fund auto-enrolment, so I’m pleased to say that so far, I appear to have taken an over-sceptical view. We haven’t seen this in the sector we deal with.”
However, White has seen more employers encouraging firms with historic full-term schemes asking whether this is the right type of scheme they should have in place, with a view to shifting to limited-term schemes.
Pricing bubble
GIP rates have been on a downward trajectory for many years in what has been an increasingly ‘soft’ market. While on the surface this seems good news for employers paying lower premiums for schemes and for insurers able to provide competitive rates, questions have arisen over when the bubble will burst.
According to group risk experts, however, rates have slowly begun to harden, and this trend has continued this year.
Homer said: “We’ve seen reports of people in the media saying there is a need for rates to go up and we have seen some of that in the market. We think that trend will continue.
“Price has dropped significantly over recent years and it’s just coming back to more reasonable levels. We’re a fairly new player in the group market. GIP, with the current market rates would have been one of the limiting factors as to why we haven’t focused so much on that business to date.
“GIP now is starting to gain momentum here and we’re starting to write significantly more business. Part of that has been due to market behaviour and our competitive position.”
White agreed: “We are seeing overall rates are hardening, although there are still some insurers hungry for business and offering very competitive terms. With some insurers it’s more marked than others, as long as we still have some insurers out there who are still being competitive but not stupid, you can still get some good rates out there.
“The role of the intermediary is not to make insurers write business on non-profitable terms; it’s to make sure they keep that profit as low as they can in the interest of their client.”
Innovation/new products
In the individual income protection sector we have seen a great deal of innovation, with more insurers thinking about simple products. Has such innovation or product development reached its cousin in the group market?
White describes the market as “relatively peculiar in that it doesn’t tend to be revolutionary, it tends to be evolutionary. There are lots of smaller changes occurring from a number of providers. Good things are picked up and copied relatively quickly.
“For instance, Unum has come up with a few more innovative products of late that have focused particularly on the uninsured population and the smaller employer, such as shorter deferred periods and limited term payment of benefit. That’s an interesting direction, and no doubt there will be some support for that. The mainstream bulk of business tends to be the larger and more professional employer.”
Potential for growth
For Homer, flexible benefit arrangements will be a good growth area, with currently just 10% of GIP schemes reporting they are part of a flexible benefits arrangement.
He explained: “Smaller companies will be looking at ways to introduce GIP. I think partly that might be driven by greater awareness and understanding of the state benefits situation and employees desiring more benefits, and employers more willing to put these in place.
“Benefits work better in these tough economic times where there’s poor scope for pay rises. They’re being asked to make contributions on behalf of employees, to use benefits more to recognise employees and give rewards. An employer may say they can’t afford to give much of a pay-rise, particularly as they’ve set up an auto-enrolment scheme, but they can perhaps put in place other benefits.”
Elliott Silk, head of employee benefits at English Mutual, says that while not a new concept, products with limited benefits payment terms are beginning to accelerate and take off.
Meanwhile, for Unum, the rise of new business, from new-to-market firms and intermediaries has been on the increase.
Potterton said: “We’ve been having some success with employers who may not have been thinking about GIP cover before. 30%-40% of our new business was the true new to market space. There’s a lot more going on at the SME side, which is good, and there may be an increase in more foreign-owned companies, as they’re more used to providing benefits, as opposed to the true UK employers. It’s slow, not as much as we would like, but it’s encouraging and we’re making some good ground.”
