Analysis: Group risk and SMEs - harnessing the opportunity

Although there are hurdles to overcome, SMEs could hold the key for intermediaries when it comes to group risk, as Nic Paton reports

It is tough out there for intermediaries selling group risk products and, with auto-enrolment lurking on the horizon, if anything, likely to get even tougher.

Back in June, a report by Mercer on benefit purchasing by SMEs painted a picture of a market holding up but under pressure.

The good news was that SMEs remained committed to offering group risk products and private medical insurance - in principle. The bad news was that, understandably in the economic climate, employers were demanding tweaks to cover in an effort to reduce premiums, to the extent that, as Mercer put it, in some cases the safety net being offered to employees was “fraying at the edges”.

Donna Biggs, principal at Mercer, says: “People are still coming into the GI [general insurance] market, but they are being smarter about how they create the benefit. So they are saying, perhaps, it will not be an open retirement date on an IP scheme but a deferred period payment one. They are thinking much more about what it will look like. It is about making sure it does the job but also that it stays within the budget.”


So, what does this trend mean for intermediaries and how is it changing the sorts of conversations they need to be having with clients, especially at the SME end of the market? Moreover, with auto-enrolment kicking off from October, which is widely expected to eat into the benefit budget many employers have to allocate, is this squeeze around group risk simply going to get worse?

In terms of the effect on intermediaries, Mercer’s Biggs concedes it stands to reason that, if benefits are reduced, premiums reduce and this can have a knock-on effect on an intermediary’s commission.

“Also, if there are fewer claims and as a result less administration and the intermediary is charging for administration that can be affected. The sort of things intermediaries can do include looking at whether to switch to a fee basis or fixed commission rather than a percentage,” she explains.

Declan White, group protection strategy and marketing manager at Friends Life says that his organisation is seeing some small schemes cancelling their cover, but it is "not a significant trend".

"However, in a depressed economy and with auto-enrolment kicking in we may well see employers reassessing their benefits packages and their associated costs," he adds.

“This is not just about SMEs, this is a trend we are seeing across the board," agrees Nick Boyton, health and risk principal at Alexander Forbes. "Most of our clients are looking at ways to contain costs. So it is something very much at the forefront of employers’ minds and we are as a result having to take different approaches.”

“I am not seeing scenarios where employers are reducing the level of life cover provided; there is still an appetite to have competitive terms,” adds Chris Wall, senior group risk consultant at Lorica Employee Benefits.

“But IP clients are considering the pros and cons of moving from a paternalistic policy that, say, goes right up to retirement age, to one that perhaps pays for a limited period,” he says.


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