Group risk market shows growth in a difficult situation

As the UK heads out of the current pandemic lockdown and the vaccination program continues apace, a more detailed picture of how the various components of the protection space fared during the worst of Covid-19 is beginning to emerge.

Published earlier this week, the Group Watch 2021 report from reinsurer Swiss Re found the employer-sponsored group risk market experienced a 3.6% year-on-year rise in the number of policies in force, equating to a total of 13.3 million people covered.

While this may not be classifiable as exceptional growth, context of the wider market condition is vital and report co-author Ron Wheatcroft, technical manager at Swiss Re, told COVER that it represents a good result for the group risk market.

"The word unprecedented is over-used and cliched, but it was a very different market and certainly not what people would have been expecting back in January. To end up in a place where we have more people covered is a tremendous tribute to the market," Wheatcroft says.

While the conditions facing employers were largely the same across the country and all took time to adapt to a very different and difficult environment, Wheatcroft says that the timing of the pandemic and first lockdown in March last year was also important for group risk, as the market would still have been finalising renewals for April having already dealt with the January tranche.

"There is never a good time, but it couldn't have happened at a more difficult time just because it was around when the renewals were going through. Given that, the market has held up remarkably well", he says.

Unexpected result

In previous years, the Group Watch report has documented a steady increase in the number of members included in Excepted Group Life Policies (EGLP), however the 2021 edition found a reversal of that trend.

During 2020, the number of EGLP members fell from 1,547,314 to 1,423,319, a year-on-year drop of 8%, while there was an uptick in memberships of Registered Group Life Policies (RGLP).

"It really was a surprise. We were expecting that the numbers of EGLPs would increase and we tested this very rigorously with the market, because our first reaction was concern that the results couldn't be right," explains Wheatcroft, who says that as Death in Service Pension (DISP) numbers continue to decline, some of these policies may have moved into RGLP rather than EGLP last year," he says.

"We think it is maybe a bit of a correction from what happened in the previous year where there was a 55% increase, which was phenomenal. Clearly that wasn't going to last for many years."

Report co-author and Swiss Re group risk specialist, Keith Williams, told COVER that the increased number of EGLPs during 2020 could be considered as something of a blip in the long-term market trend.

"When we were talking about this with the insurance contributors they were saying exactly that, that perhaps it is just a bit of blip and we will be back on-trend next year. And that as we, year-on-year, see this reduction in DISP cover, perhaps it is just a year where a certain amount of this business transferred into RGLP cover rather than EGLP", Williams says.

While it is perhaps little surprise that the volume of DISP members continued to fall in 2020, down 7.3% on the previous year, the product is relatively cheap compared to other options and is valued by employers and employees alike, Wheatcroft says, which will help to fortify the resilience of the product going forward.

Critical illness & LTDI

The two products that displayed the highest levels of growth during 2020 were critical illness cover and long-term disability income (LTDI), which grew 7.9% and 6.6% respectively.

The number of members covered by a group critical illness policy increased to 658,364 last year, as sums assured under this product grew 5.3% to a total of £ 46,467,436,705.

Williams states that group crucial illness "tends to look after itself" and that although a historical yearly increase in the range of 5-10% is to be expected, it is still a positive result under the circumstances.

"The fact that we are still getting that 5% increase in benefits compared to 2019 is very encouraging, especially when employees would have had the option to flex down their group critical illness cover if they had been put on furlough and didn't have as much money as they would normally," he explains.

Meanwhile, the growth in LTDI cover continues to evidence a trend Wheatcroft notes goes back "10 years or maybe more", the roots of which were in the time when the government was bringing in legislation about age discrimination in employment.

"There was an element of managing that risk and if we look at the numbers broadly it tends to be the bigger schemes that have been reducing the benefit terms slightly, and that is probably because they have more legal and other advice to support their businesses," he says.

"That said, every year when we put the questionnaire out we are always told that the growth in five years, typically, is going to accelerate fast and it never does, so it is a gradual change."

Wheatcroft says it is a "really strong message" from the group market that the majority of benefits that are payable are so for a period of at least five years, and that this will be a surprise to some. The report finds that in 2020, of the 17,948 LTDI policies in force, 74% of products are payable to retirement and a further 15.5% have a maximum five-year benefit period.

"We are now in our 17th year that limited payment term has really been introduced into this market and we have still got over 80% of members covered for at least five years. We haven't had that year-on-year significant reduction as we may have expected all those years ago," says Williams.

Looking forward

One area of required improvement highlighted by the report is an "urgent need" for the government to encourage employers to provide for their workforces to support continued growth in a post-Covid landscape.

This, the report recommends, can be achieved by the removal of tax complexity around products that may put off prospective group risk customers. Wheatcroft says the Swiss Re will take up the issue with the government and HMRC, and that some of the proposals to be put forward - a simpler regime for death in service benefits and to remove some of the complexities around flexing up on LDTI - would not require tax breaks.

"We didn't include the numbers this year, but if you look at the impact, for example on LTDI and the different tax regimes for the employer and employee contribution and benefit, if we were to move to a consistent basis the cost of that would probably be somewhere between £500,000 to £1.5 million. That could go either way, because it would depend on when a claim occurred and the amount of benefit for that claim," he explains.

"But the tax rules as they are act as a disincentive and with the difficult financial climate we are likely facing, employers may well want to share the cost a bit. If, in doing so, it creates more burdens then that's why they will just withdraw it completely."