From the cradle to the grave?

Welfare reform means that employers will soon have a far greater responsibility to look after the health and wellbeing of their workforce. But are the slight service level improvements being witnessed in the group risk sector enough to help them on their way? Edmund Tirbutt reports

Some things never seem to change.

If you mention group risk to intermediaries they will instantly start spouting forth about unacceptable service standards, and if you mention group risk to insurers they will point to the huge improvements they have made over the last year. However dig you deep, the two sides of the story just never seem to add up.

But one slight variation on the theme is that the bulk of intermediary grievances now refer to after-sale and renewal service standards, as opposed to the time that it takes to obtain initial quotations.

Initial quote turnaround times have undoubtedly improved, with many intermediaries expressing broad satisfaction that most quotes are now obtainable within 10 working days. A couple of years ago, however, quotes often took twice as long and, in extreme circumstances, could take several months. Now even the disenchanted minority do not paint anything like such a bleak picture.

Philip Thorpe, group consultant at national specialist intermediary IHC, says: “They need to turn quotes around in five working days but are generally taking between seven and 15 and, in a worst case scenario, as long as a month. I have no doubt that if one company was consistently quickest at quoting they would get more business. Group private medical insurance (PMI) providers tend to give quotes within two working days and, although the information required for group risk is usually more detailed, if one provider started providing quotes consistently within four days they would stand out.

“But they know that most IFAs will get quotes from all half a dozen players and will wait for the slowest because an IFA would have to demonstrate a very strong argument for not putting all available providers forward. It’s also one of the worst kept secrets in this industry that some employers get more than one intermediary to quote, even though there is no real benefit in doing so because insurers don’t dual price. This practice clogs up the system and it would constitute a real step forwards if employers could end it.”

Canada Life and Norwich Union Healthcare already report that they aim to deliver quotes for small companies within five working days and that they manage to achieve this in most cases. The former even claims to take as little as two working days on occasions. BUPA, which measures its quotation speeds on a weekly basis, is also notable for referring to an average quote turnaround time of 6.4 working days for all sizes of company.

When it comes to post-sale administration, however, there is clearly still a massive uphill task facing providers. They have to cope with huge peaks and troughs in their workloads, a continuous stream of regulatory change requiring new documentation, and the difficulties involved with trying to motivate the type of “jobsworths” that tend to work in mundane administrative roles.

Stuart Gray, managing director of national specialist intermediary Portus Consulting, says: “There seems to be a focus on getting work out of the door but the quality hasn’t improved. It can take up to 18 months after renewal before you get the correct premium account through because you can get up to four or five incorrect versions with silly errors, such as using the wrong basis for calculating premiums. If these obvious errors are happening then how do we know that there aren’t more serious ones in the minutiae?

“Administration is not exactly sexy work and tends to attract reasonably low quality people. If you pay peanuts you get monkeys and, even if you pay more, anyone with any gumption will progress out of such a role. You get a lot of very young people for whom work is clearly not top of the shopping list, and we need greater quality control and better training to encourage greater attention to detail. We would actually like to take some of the work away from the insurers to avoid the incompetence, but when we offer to do so they look at us blankly as though they possess some sort of rocket science that we don’t have.”

Canada Life is unusual in acknowledging that it “still has some way to go in addressing post-sale administration issues”, but other insurers either express satisfaction at having knocked the problem on the head or seem blissfully unaware that they have a problem to deal with.

AEGON Scottish Equitable reports that it has specifically focused on renewal accounts, where it had definitely been behind schedule, sometimes by six to nine months. By increasing staffing levels and introducing a radical training programme during the last year, it claims to have increased its output on renewal accounts by 400%. Last December, it hit its target of 95% of renewal accounts produced and issued accurately to clients within one month of renewal date.

Unum is also confident that recent remedial action has done the trick, reporting that last year it steadily cleared off the backlog that was affecting renewal issues and it has performed a lot of structural realignment on a regional basis during the early weeks of 2008. This process, which will be ongoing this year, aims to get rid of anonymity by giving brokers regional contacts, and Unum reports that the larger broker groups are already referring to an improvement.

BUPA, on the other hand, says that its post-sales administration is “doing pretty well” and Norwich Union Healthcare does not feel that it has any service issues.

One could be forgiven for thinking that some of the insurers and intermediaries are living on different planets, and objective research on service standards is badly needed. National employee benefit consultants Aon Consulting already produces such a comparative exercise for its own benefit and shares the results with client companies and with the group risk insurers themselves.

Paul White, head of risk benefits consulting at Aon Consulting, says: “Sharing the information with insurers enables them to understand that price is not the only criteria and that employers may be willing to place business with those charging higher premiums if service is important to them. Similarly, we can use the survey to drive service improvement from insurers and can remove an insurer from our list of providers if its service is shown to be particularly poor.

“Unlike medical expenses insurance, where administration has always been a key criterion in who should carry the risk, group risk insurers have traditionally adopted the view that the key determinant of where business is placed has been price. Using this model, either consciously or sub-consciously, insurers have been willing to sacrifice service if it means keeping price low. But this approach is fundamentally flawed because employers make rational decisions based on factors such as price, contract terms and insurer service.”

While clients of Aon Consulting may well be taking such an enlightened approach, it is clearly not yet happening industry-wide because, if all employers were voting with their feet, some insurers would be shedding schemes like scales from a fish. But, if such objective research was generally available, a little public naming and shaming could possibly help.

GENERAL TRENDS

We should, however, be grateful for at least one small mercy in the group risk arena. Discussion of “integrated healthcare” seems to be making the transition from 24 carat waffle to referring to concrete actions. A couple of players have finally put their money where their mouth is to reflect their belief that a holistic wellness model can reduce insurance claims. Norwich Union Healthcare and BUPA now offer a structured matrix of discounts to employers who take one or more products from a menu of group critical illness cover (CI), income protection (IP), life, PMI and wellness and absence management type services.

BUPA has been offering discounts of 5% to 30% since October 2007, when it also restructured its entire business as an integrated whole that no longer subdivides between wellness, PMI and group risk.

Lee Lovett, head of specialist sales at BUPA, says: “Feedback from the market suggested we weren’t sufficiently joined up and that our reps were often not aware that other BUPA colleagues had called on the same company. We have therefore put together a two year training programme to enable our reps to represent us over the product range. Eventually we will just use one rep per client and, although we may have to use several reps with the same client at the moment, at least their visits will be coordinated.”

In December 2007, Norwich Union Healthcare, which has not undergone any such official restructuring, introduced a similar broad range of discounts. It has also gone a step further by offering corporate clients 5% to 25% premium discounts on individual home, motor and travel insurance policies.

Demand for group risk products via flex continues to grow steadily and, as far as CI is concerned, flex represents the only real growth area. Although CI researches well with employees, it continues to be a low priority for employers seeking to offer company-paid health cover.

Jamie Barnes, director of client services at national employee benefit consultants Gissings Advisory Services, says: “CI is still a very popular voluntary benefit in flex and take-up rates are typically 20% to 25%, compared to 2% to 3% for spouse and partner life cover. One client even has an 80% take-up rate for CI.

“We are seeing more small companies offering CI, IP and life via flex schemes. IP and life tend to be core benefits with the option to top up, and CI tends to be a voluntary benefit. With IP, core cover is normally 40% to 50% of salary and there has been a trend during the last year for employees not to buy back more than a small proportion of their permitted additional top-up.”

Outside flex, few spokespeople find CI worthy of comment but, thanks primarily to issues relating to post 9/11 catastrophe cover and to the April 2006 A-Day changes, the same is not true of group life.

Sue Elliott, principal consultant at Watson Wyatt, says: “In group CI in general there is still not much activity. There have been no new products or significant tweaks and employers continue to show a lack of interest in company-paid cover. But, with group life, splitting the risk between carriers is enabling employers to get high event limits of up to £1m to £1.5m, and this approach has been popular for a year or so. The A-Day changes have also seen a move in group life benefits away from dependant’s pension towards higher multiples of lump sum.”

LEGISLATIVE CHANGE

Additionally, the A-Day changes have seen a slight trend in the direction of Excepted Group Life schemes instead of Registered Schemes. These involve similar taxation advantages to Registered Schemes, without having the restriction of the Lifetime Allowance or other upper limit and without involving the onerous administrative duties. But their downside is that they require a common benefit formula for all members and do not permit a dependant’s pension.

But there is a noticeable lack of agreement as to whether A-Day has had a positive or negative impact on the group risk market as a whole. Some commentators feel that it has provided little more than a huge amount of distraction while others continue to emphasise the opportunities presented for visiting clients to reappraise cover.

Simon Bailey, head of marketing for employee benefits at AEGON Scottish Equitable, says: “We are saying to intermediaries that schemes coming up for renewal this April provide a good opportunity to have a conversation about group risk. Schemes that renewed in 2006 probably have not had the chance to fully understand the implication of pension tax changes on their group life arrangements.”

There is also a similar lack of agreement about the implications of the Employment Equality (Age) Regulations introduced in October 2006, particularly with regard to whether employers are starting to require more cover for those aged over 65 – employers are not obliged to allow employees to work beyond 65 but, if they do, they must not discriminate against them with regard to group risk entitlements.

THE COST OF ABSENCE – A QUICK REMINDER
Source: Department for Work & Pensions/Legal & General
Cost of £13bn to UK economy
164 million working days lost each year
Around one million report sick every week
3,000 of which will remain absent for more than six months
80% of those still off work five years later

Some insurers and intermediaries report a noticeable increase in demand from employers for IP cover up until age 70. Others suggest the regulations have backfired in the sense that they have led companies to mandatorily retire employees at 65 whom they might otherwise have allowed to work on until an older age.

Matthew Lawrence, head of risk and healthcare practice at Aon Consulting, says: “The age regulations certainly haven’t helped the market. There is a degree of concern around pricing, particularly on IP, for which cover between the ages of 65 and 70 involves a loading of between 5% and 35%. The justification from an insurer perspective is that they have no experience on which to base their assessment of the older risks, so you could argue that they are being very cautious.

“We have seen many clients who are unwilling to pay the extra costs for IP above 65 and have elected to take the risk themselves. We must make sure that they are fully aware of the risks involved with self-insuring and are comfortable with it. Some I am talking to are considering introducing 12 month rolling employment contracts to help manage costs.”

Lack of agreement is also very much in evidence with regard to the impact of the Welfare Reform changes to the State benefit system due to be introduced this October, but the fact that the exact details have yet to be announced does at least provide mitigating circumstances.

It has been made clear that a Work Capability Assessment will replace the Personal Capability Assessment and that an Employment and Support Allowance will replace Incapacity Benefit. The fact that Single Person’s State Incapacity Benefit (SPSIB), which is used as an offset in the benefit basis of most group IP schemes, will no longer exist is likely to see providers remove clauses requiring the deduction (most providers currently use a basis of 75% of salary minus SPSIB). On the other hand, the government is clearly intent on spending less money on state disability benefits, which should in theory boost demand for IP provision.

Dan Lamb, head of group risk at national employee benefit consultants Jelf Group, says: “Some insurers are talking about offering a changed format but I don’t think employers have any need to take action until the state changes are made totally clear. In flex schemes, having a flat 75% rate would make things a lot simpler but in company-paid schemes the employee typically doesn’t have a choice to make. Not deducting SPSIB benefit would involve offering extra cover and therefore may create a slight increase in cost, so some providers may go down to a flat rate of 70% or 65%.”

BUPAhas in fact already moved to a flat rate of 75% of salary in anticipation of the changes, but it would be no surprise if other providers waited until the new proposals are set in stone. After all, the government’s track record for delays and last minute changes when implementing new measures in this industry is so shambolic that it makes the service standards of group risk providers seem immaculate in comparison.

PRODUCT NEWS

Product innovation in group risk has been in short supply and the fact that the market has access to only two significant reinsurers in Munich Re and Swiss Re may have played its part in stifling innovation. Or could it just be coincidence that Unum, which does not reinsure its group IP book, has produced the one significant recent product launch?

Unum’s Dual Benefit Group Income Protection, launched this January, has been designed for smaller businesses with three to 99 employees which do not currently offer IP or which may not offer any kind of occupational sick pay. It limits benefit payment periods to two, three, four and five years and provides the option of having either a four week or eight week deferred period, in addition to the traditional options of 13 and 26 weeks – the first time a group IP provider has offered a deferred period of less than 13 weeks.

An automatic monthly Business Benefit helps employers cover costs such as making reasonable adjustments to the workplace to facilitate an incapacitated employee’s return to work and hiring a temporary replacement, while a serious illness benefit pays a lump sum to the employer – as opposed to the employee – at the end of the income benefit period.

Wojciech Dochan, head of commercial marketing at Unum, says: “We found that a lot of newly formed companies question why they should provide disability benefit up until the age of 65. They would prefer to provide cover for employees for two years and to benefit from payments themselves if employees are incapacitated, in a similar way to key person cover.”

Legal & General also demonstrated an awareness of the fact that jobs are no longer for life with the launch of its Progressive Group Income Protection in April 2007. The approach uses “own occupation” cover for the first two years, reducing to “any suited” cover for the next two years. If an individual is still unable to return to work after four years, the assessment of an employee’s ability to work is based on activities of daily working. Claimants can receive income until retirement or a lump sum can be paid.

Otherwise, company specific product news tends to be limited to add-ons. This March BUPA made its Positive Health information service available to group IP and CI members, in February 2007 AEGON Scottish Equitable added the RED ARC bereavement counselling service to its group life offering and in January 2008 Generali added Best Doctors to its group IP.

Previously the Best Doctors facility, which is available to 11 million people across 30 countries, had been exclusive to Canada Life in the UK, but now that the exclusivity period has ended it could be considered by other group risk providers as well. Dominic Howard, director UK and Ireland of Best Doctors, states that the ultimate aim is for every UK group IP and CI scheme to offer it.

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