Analysis: Cash plans - are voluntary schemes worth the effort?

The commission conundrum explained

As budget-conscious employers look to trim their healthcare costs, some are looking to voluntary cash plan schemes as an alternative. But what does this mean for intermediaries' income? Sam Barrett reports

Cash plans are becoming a standard part of an adviser’s armoury, enabling employers to offer a low cost, high value benefit. But while all the adviser attention is on the company-paid plans, some of the providers believe that advisers are missing an opportunity by ignoring the voluntary market.

“Advisers often do the difficult bits and then leave the voluntary benefits on the table for someone else to pick up and grow a relationship with their client,” says Brian Hall, sales and marketing director at BHSF. “But there are some large schemes out there, generating significant earnings for their advisers.”

In addition to preventing others from getting a foot in the door, recommending a voluntary cash plan can be a stepping stone to a company-paid scheme.

“We do find that some employers will put a voluntary cash plan in to gauge how much employees value it and, if take-up is good, they’ll switch to a company-paid scheme. We’ve won lots of business this way,” explains Lara Rendell, marketing manager at Health Shield.

Helping to drive this is the fact that cash plans are a highly visible benefit. Employees claim at least once a year, especially when it’s a benefit they pay for themselves. This can help to raise the profile of the benefits package generally as well as of the cash plan.

Commission conundrum

But, while the cash plan providers are keen to promote the merits of recommending voluntary schemes, there is a key reason behind advisers’ reluctance to explore this area – money.

Commission is not as chunky as it is on a company-paid scheme. For example while Health Shield pays 10% initial and 10% renewal on its company-paid business, voluntary scheme commission drops to 10% initial and 2.5% renewal.

With other providers the remuneration is even more meagre. Howard Hughes, head of employer marketing at Simplyhealth, says there is so little margin in a voluntary cash plan, an adviser can only really expect a one-off payment for introducing the business.

“We might be able to offer more generous commission, say 10% initial and 10% renewal, if it was an SME scheme and the adviser did all the legwork with the client. But this is purely hypothetical as we don’t get advisers bringing this sort of business to us,” he explains.

To put even more of a dampener on voluntary schemes, there is no guarantee of getting the volume of sales with a voluntary scheme. Take-up varies according to the sector and the range of employee benefits that are also in place as well as how the cash plan is positioned and how much it’s promoted.

Mike Blake, compliance director at PMI Health Group, the national advisory firm, does not believe voluntary schemes offer sufficient appeal to advisers.

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