What future for group risk?

Why price is just one factor that advisers should consider

AEGON’s decision to withdraw from the group risk market last year was, on the surface at least, hardly a ringing endorsement of the sector’s potential for growth.

After all, the withdrawal of such a heavyweight financial services player from the market could have suggested that the outlook for group risk is bleak.

However, it seems that AEGON’s decision might very well have been a strategic one, unrelated to the forecast for group risk benefits as a whole.

In actual fact, there are many good news stories that are out there, not least about AEGON itself. Senior figures tell me that the provider has been handling its exit from the market impeccably, providing excellent levels of service to intermediaries and customers alike – perhaps better, ironically, than when it was actually an active player in the market.

It’s fair to say that service levels have improved markedly across the board, while underwriting has become increasingly sophisticed. This month we report on some of those good news stories (page 30).

The entry of Zurich and Ellipse into the market, for example, is a cause for cheer and initial reports from intermediaries have been favourable. The “free cover” war appears to have come to a natural end and “product” – or rather scheme – design is much more flexible and customer-focused. And GRiD, the industry trade body, seems to have got its act together with regards to improving the market’s relationship with the trade and national media, albeit a few years in the making.

However, undoubted problems remain in group risk. The challenges raised by equality legislation and pensions reform are huge, while the soft market could prove to be unsustainable for much longer.

So will rates harden? They’ll have to, I’m told, but who is going to be the first to take the hit? Whichever insurer takes the plunge, they will be penalised, inevitably, as a number of schemes leave in search of cheaper deals. But they should also be congratulated on bringing a sense of reality back to the market.

Now, it would be naive, of course, to suggest that advisers should not consider price when recommending the best deal available to their clients. But the emergence of group risk consulting – as opposed to basic broking – as a key intermediary characteristic is encouraging.

After all, group risk benefits – like most health insurance and protection products – should always be about more than just price. Fortunately, there are an increasing number of advisers who are able and willing to build sophisticated solutions for their clients based on more than just cost.

There’s a maturity and sense of responsibility to the market that bodes well for the future and if providers and intermediaries can embrace the attitude being demonstrated by the outgoing AEGON, for example, then employers and employees – and UK plc – stand to benefit hugely.

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