SMEs cutting back on PMI and group protection

Firms increasing PMI excesses and IP deferred periods

Smaller businesses are cutting back on the level of cover provided by benefits such as private medical insurance (PMI), according to analysis by Mercer.

A report by the HR consulting firm shows that small and medium-sized enterprises (SMEs) are retaining their core employee benefits, but amending the policies to reduce costs.

Mercer’s UK SME Benefits Analysis 2012 reveals that companies are increasing their PMI excesses and group income protection (IP) deferred periods, as well as tweaking group life policies.

Mercer says that medical inflation is pushing up PMI costs, with premiums increasing on average by 10% between 2010 and 2011.

The average SME was paying an annual PMI premium per member of £1,532 in 2011, up from £1,499 in 2010.



Mercer says that as a result, firms are looking to tweak excesses to save cash.

It says that while many companies still have no excess, a £100 excess is becoming a favourite option when policies are renewed, with 25% of the firms it surveyed choosing this option.

Donna Biggs, principal at Mercer, said employers need to ensure that by introducing ever higher excesses, they do not force employees to delay treatment if they cannot afford the excess and end up taking more time off work as a result.

She said: “A number of clients are now seeking to establish whether the inclusion of a cash plan can help employees offset this cost, whilst still maintaining overall premium savings for the employer.”

In terms of group IP, Biggs said there are two main trends: firms are both increasing their deferred periods to put them in line with the industry standard of 26 weeks, and reducing the amount their policies pay out in basic benefits.

She said: “Companies with limited HR functions are looking to shift as much of the burden as possible onto the insurer.

“While they may want the benefit paid as soon as possible they look to balance the cost by limiting the level of benefit payable to maybe two or five years rather than the usual industry standard of paying a claim until the employee retires.”

In addition, Mercer says that some firms are carrying out cost cutting exercises on group life policies, although these are less notable than for either PMI or group IP.

It says that historically, the most popular option for SMEs was to cover employees for four times their annual salary, but now, when setting up a policy a growing number of firms are opting for two times salary instead.

Mercer added: “There is some suggestion that employers are removing the option of cover for spouses' pensions in group life schemes but increasing the multiples of salary paid to offset that.”




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