Group critical illness

Group critical illness (CI) cover is one of the least sold products in the group protection market with employers not classing it as valuable as life and income protection (IP) for their employees.

One of the reasons for this could be, that unlike IP, group CI does not have a direct effect in getting people back to work. However, it remains an important form of cover should someone suffer a life altering illness.

As medical science advances, more and more people manage to make a full recovery after suffering from a serious illness such as a heart attack or cancer. But with employees targeted by several other employee benefits, including the recently-introduced stakeholder pension schemes, CI could remain low on their list of priorities.

Howard Rayner, legislation manager at Royal & SunAlliance, says: 'If you look at group life and income protection, critical illness comes third on the list and the problem at the moment is that people have been more interested in stakeholder schemes. It is much lower on people's minds and always has been.'

Eugine McCormack, director of marketing at UNUM, agrees: 'Group CI is a product which has not been embedded in the group market, although it is in the early stages of its life. Sales have been quite disappointing and I think the reason for this is that IFAs have not recognised the opportunities which exist for the product.'

Individual employees need to be more informed about group CI in order for it to succeed according to Nicola Smith, communications manager employee benefits at Swiss Life.

She says: 'Individuals do know about the product, but still are not aware that their employer could get group benefits for them.'

This is a problem which she believes needs to be remedied by the providers of group CI.

'The market needs to be stimulated and the onus should be on providers. There needs to be more communication to employers about the benefits of group CI and potentially more communication to employees. We need to communicate through means such as roadshows.

'Providers need to develop the product more in terms of what's in it for the employer,' she adds.

The overall benefits of group CI need to be emphasised to employers and this is where the role of the IFA is vital. IFAs need to promote and sell the benefits of group CI to their corporate clients.

Smith believes that many IFAs are still not promoting the product.

'A lot of IFAs are still hesitant to talk about group critical illness. The introduction of stakeholder pensions would have hopefully started the debate about group products and group critical illness is something people could talk to employers about. But we don't know to what extent that has happened yet,' she says.

Is the price right?

One of the many issues for employers is the cost of products. They do not want to be ploughing money into a product which provides little value. Although group CI is often less expensive than IP, the value is not as obvious from the employer's point of view.

Rod McCarthy, group risk actuary at Scottish Equitable, says: 'The focus needs to be on employers getting value ' they won't spend money on something they aren't getting value from.'

Rayner agrees that cost is an issue: 'Employers are very reluctant to pay for the cover for employees.' This reluctance could be one of the reasons for such slow growth in the market.

Paul Casey, marketing analyst at GE Frankona RE confirms growth within the group CI market has been slow.

Figures from the reassurer also indicate that the average number of lives covered per scheme increased from 75 in 2000 to 81 in 2001, whereas the average scheme premium fell from £8,897 in 2000 to £7,653 in 2001.

'The increase in lives but reduction in scheme premium averages may indicate more voluntary benefits being effected where individuals are buying lower cover than that offered by employer sponsored schemes. We expect the voluntary benefit business to continue to grow steadily,' Casey says.

Rayner also noted that although there was a 10% increase in the market last year, it was down on previous years.

He says: 'I can imagine growth in the market being slow: it went up 10% last year on premiums, but grew more in previous years. It has slowed down, but it is going from a fairly small base.'

Casey adds: 'Although the market has grown, the premium has grown less than the number of people covered. So there are more people being covered for group critical illness, but the actual group premium has not increased by the same proportion.' Much of this is thought to be due to an increase in the number of employees buying their own cover through their employers. Casey says: 'We think this is due to worksite marketing and people taking out benefits through worksite marketing, which means they are taking up smaller benefits.'

The poor growth of group CI is down to it being less beneficial for the employer than the employee, according to McCarthy.

He says: 'On an employer-only basis there has been less growth. Group critical illness satisfies employer issues than employee issues and solves business issues for the employer. However, if offered under an employee benefits package it does offer value.'

In order to increase growth in the market, experts agree that something needs to change with the group CI products currently offered. Product development, innovation and change are all aspects which need to be reviewed in order to improve the market.

Smith says: 'Growth will continue, but it is down to product development and we need to continue to innovate the products.'

How to do this is the million-dollar question, but McCarthy suggests looking at the issue of benefit payments.

'The benefits structure and the triggers for benefit payments need to be more aligned with the risks the employer wants to cover. But in general it will not explode without a product change,' he says.

Having a website clients can access 24-hours-a-day is also an important aspect, according to Smith. However, the real growth for the future of group CI appears to lie in the voluntary and flexible benefits market.

'There is a lot of potential in the voluntary and flexible benefits market. It is a benefit with a relatively low cost, but high perceived value. This is because people can normally equate the lump sum with the cost of their mortgage. Group critical illness is a good benefit in the voluntary sector because companies can bring it in, get the benefit of group rates, but do not have additional costs for their bottom line,' Smith says.

McCarthy adds: 'The product will grow in the future, but it will be mainly through the flexible benefits market, I can't see the employer sponsored market growing too much.'

Adele Burton is a staff writer