Unum: We need to tackle perverse incentives in IP

Group Risk

CEO responds to concerns from OH doctor

The insurance industry needs to design policies that incentivise claimants to return to work, according to the chief executive of Unum.

At an Association of British Insurers (ABI) seminar held this morning, Jack McGarry admitted that there were "flaws" in insurance that needed to be ironed out.

He was responding to a question from a professor of occupational medicine who said he regularly saw well-paid people on income protection (IP) who become "extremely passive" and have no incentive to go back to work.

"A typical policy pays 80% salary replacement linked to RPI," said McGarry, whose company co-sponsored the event with AXA PPP healthcare. "It also offers an own job definition until retirement. So an awful lot of people are still on benefit and able to do other things but choose not to.

"IP is seen as expensive but a piece of that is because we over-protect. Getting a 60% level recognises that you forgo expenses when you don’t work. [Insurers could also offer] own occupation for some time then suited occupation after a period of time."

Last year Unum launched a new "foundation level" of IP cover, aimed at democratising an insurance often offered to senior employees only. It offers up to 60% replacement income and no offset for State benefits.

This morning's seminar brought together insurers with healthcare professionals, union representatives and policymakers to discuss the recent independent sickness absence review. The review concluded that IP was primarily a benefit for the higher-paid and McGarry used the seminar to challenge this view.

"The review said that insurance industry would not change," he said. "Unum does not believe that, we believe it will change but it could use a nudge."

He pointed to the US and Canada, where the insurance industry played a role in creating a fiduciary duty on employers to treat all employees the same - including those unwell or absent from work.

"We need to make sure that all employees who are disabled are treated fairly by their employers," he concluded.

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