Since the arrival of auto-enrolment, the business case for linking protection and pensions has become ever more compelling, writes Jason Green.
The pension and protection worlds are incredibly linked in many ways, yet at the same time very disjointed. Since the start of auto-enrolment it has been widely discussed how the industry would like to see group pension and protection policies more closely aligned to increase working efficiencies and decrease administration.
Although it is not possible to have a combined ‘two in one’ policy as a result of legislation, it is great to see Trust Pensions and Canada Life joining forces to provide protection cover to smaller and micro pension savers as they join the master trust for auto-enrolment.
The small saver opportunity
The business case for such an offering such is certainly compelling. Auto-enrolment has resulted in more than five million employees being enrolled into a workplace pension to date, with about a further five million to be enrolled by the end of 2018.
Employers already gather the vast majority of employee data that is required to administer a protection policy each month for auto-enrolment. Due to the new rules introduced in October 2012 employers need to assess their workforce on a monthly basis and make appropriate pension contributions on behalf of the member, which is usually paid to the pension provider by monthly direct debit.
Many of the traditional pension providers that are actively targeting small and micro employers for auto-enrolment also operate in the group risk market. Therefore, is there an opportunity for pension and protection departments to ‘marry’ up and work more closely together to provide a more complementary side-by-side service?
The key data items that could restrict an insurer providing a full protection quote would be occupation and benefit levels required, and possibly a work postcode, (although not mandatory for auto-enrolment, this would usually be present). These data items are not captured as part of the auto-enrolment process, but they could be. If the provider is supplying both services, they simply have to ask for the ‘additional’ group risk data to be supplied as part of their monthly pension requirements.
The added benefit of using pensions data for protection is that group risk premiums could be calculated monthly, which means that any joiners, leavers or variations in pay can be taken into account throughout the year and applied monthly, rather than adjusted at renewal as many providers do.
This would simplify the process for both the employer and provider, which could result in less administration and therefore potentially lowers costs for all involved. Group risk plans can make cover available to employees for a fraction of the individual arrangements and combining technology and data can streamline operational costs.
Canada Life is working with Trust Pensions to offer optional group life cover alongside the pension. Canada Life’s Simply CLASS product, which was launched at the start of the summer, has been designed to provide protection cover for smaller employers with between two and 50 members of staff.
Simply CLASS offers up to 2x salary, with a maximum benefit of £150,000 and no one under this approach needs any form of medical underwriting. The policy can also be set up online, requiring only basic employee data (name, sex, salary and date of birth), which are already captured and held by the employer from auto-enrolment. Canada Life’s CLASS also offers bereavement counselling and a probate helpline as part of the service.
Cement to fill protection gap
Research conducted for Canada Life earlier in the year states that 55% of employers with less than 50 staff would consider offering protection benefits when they implement an automatic enrolment pension. Overall, the group risk market increased by 7.9% in 2015 (Swiss Re’s Group Risk report, April 2015), so there is evidence that there is employer demand in this growing market.
This could be another step forward in filling the protection gap. The Drewberry Protection survey 2015 found that 50% of families in the UK with a mortgage have no life insurance protection. Therefore, anything that is helping to grow the group risk market by offering products that perhaps previously have only been considered as benefits from larger employers can only be seen as positive.
The industry has been talking about harmonising pensions and protection arrangements for many years. It is great to see providers putting words into actions, and hopefully more providers will follow suit.
Jason Green is head of workplace research at F&TRC
