As the number of people with group income protection rises, Thomas Smith looks at how the industry is faring.
One clear trend has been emerging in the group income protection (GIP) market in recent years. While GIP is seeing growth in the number of people covered, there has been a fall in the number of schemes in operation.
In 2014, the market for long-term disability income for employers grew by 1.9%, having passed the two million mark the previous year in terms of people insured.
Meanwhile, in-force schemes fell by 0.4% to 17,119, according to Swiss Re's Group Watch 2015 report.
The smaller companies taking up IP will grow over the next few years as they start to introduce workplace benefits for the very first time
John Kerr, vice chairman of Kerr Henderson, agreed: "We have not terminated any GIP schemes recently, but what we have seen is more things such as companies buying other companies. That would explain the trend: the numbers in a scheme are going up but the scheme count is actually going down."
However, the industry remains small compared to its potential, with most employers not offering a GIP scheme to their staff. Paul Avis, marketing director of Canada Life Group Insurance, said: "There were 17,119 employers, from a potential 1.3 million, so our penetration rate as an industry is only 1.3% of all employers. In terms of our key challenge, all insurers should align to get more employers to buy this essential benefit.
"There are a number of barriers to buying that benefit. The key one is cost - premiums are increasing because of a prolonged period of low interest rates.
"Until the interest rates gets back to where it routinely is at 3%-5%, GIP rates are artificially high due to the amount of reserves we [insurers] are having to put away due to low interest rates. If the Bank of England begins to increase rates in 2016, this should see a reduction in the premium and rate per 1,000 of benefit as insurers are able to put less into reserves."
Avis did warn that due to state benefits changes, "the premium reductions that a higher interest rate would bring may actually be undermined by the fact that we have to increase our benefits".
Waiting for progress
Andrew Potterton, head of proposition development at Unum, said he believed that growth was coming, but it is very slow.
"I don't think it's terribly different in terms of the penetration than it has been for a few years. We are getting plenty of interest from employers who then just need to make that extra connection to convert that into buying the product."
Where will future growth come from? For many industry experts, the small- to mid-sized enterprise (SME) market is the one to watch as auto-enrolment (AE) means these companies will be engaging with benefits for the first time.
Chris Morgan, manager - distributor partnerships at Ellipse, said: "The smaller companies taking up income protection (IP) will grow over the next few years as they start to introduce workplace benefits for the very first time.
"As the smaller companies start to introduce a pension, they are much more likely to look than at ‘What else can I get, what else would be useful to my staff? What else is affordable?'"
Accommodating change
Another area of change is policy length and insurers have revisited this, making policies much more flexible.
Steve Bridger, group risk director at Aviva, said: "We have not seen much drop. We are seeing some schemes move from either normal provision to flex, or through to retirement age, or state pension age to limited-term payment, which is actually keeping more customers in the market.
"While there is a tighter purse, the market has a number of mechanisms or offers which mean not that something is better than nothing, but actually what might be more appropriate to a customer is available to them, rather than just the benefit provision to state pension age."
