It could, however, now be only a matter of time before trusts and self-insurance start being dwarfed by the “Corporate Deductible”, a new concept unveiled by the oh-so-creative-thinking WPA this May (see box). The idea, which essentially treats a large part of the risk as an excess so that the insured element becomes minimal, is as impressive as it is simple. One could be forgiven for thinking that it is too good to be true, but there is no apparent catch.
Adrian Humphreys, managing director, corporate business, at WPA, says: “After having the Corporate Deductible explained to them, one broker even exclaimed that we have all been driving around on square wheels. We have obtained HMRC [Her Majesty’s revenue & Customs] approval and there is no downside but the upside is that you avoid IPT. It wouldn’t surprise me if it catches on like wildfire but it won’t spell the death of the trust because the insurer still decides what’s covered with the Corporate Deductible, whereas with trusts you cover what you like.”
Matthew Judge, technical director at national specialist intermediary Jelf Employee Benefits, cannot see any flaws in the Corporate Deductible except for the danger that if it really takes off there must be a chance during the current economic environment that the government will try and clamp down on it.
Judge says: “In our view WPA is very leading-edge in terms of its approach to these things and it is always looking at innovative ways of getting around problems. People are basically saying that this idea is so simple that they can’t understand why we haven’t all thought of it before. You basically no longer have to self-fund to avoid IPT but the fund must be a big enough size to make it worth it. From the information that I’ve seen to date I would imagine that you would need it to be at least a few hundred thousand pounds in size for it to generate a meaningful level of saving.”
While WPA should be heartily congratulated for the latest and seemingly most significant of a series of impressive innovations during recent years, it also deserves a huge amount of advanced sympathy because there is a limit to how much it will gain from its brilliance. If HMrC does not clamp down on the idea you can bet your bottom dollar that all the major players in the large group market will simply copy it. Perhaps it is time to change the law to allow UK financial services products to be patented?
In December 2009 CIGNA HealthCare introduced an option enabling claimants to bypass GP consent and self-refer for physiotherapy to Nuffield Health, which uses certain treatment pathways to avoid over-treatment. To date there has been no evidence of moral hazard proving a problem.
This September CIGNA HealthCare also launched a condition management programme for back pain. The idea is to make sure that claimants get the most appropriate treatments and avoid unnecessary ones, like surgery, for conditions that will not actually get better. They are educated in how to understand the source of the pain and taught coping strategies like cognitive behavioural therapy to change their patterns of thought.