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Looking beyond cost with Group Income Protection

3 July 2018

Truisms such as 'you get what you pay for' and 'If something seems too good to be true it normally is' have been drummed into most of us from an early age. But they are all-too-easy to forget in a cost-cutting obsessed business world.  

There is constant pressure to opt for the lowest immediate outlay rather than for what is ultimately likely to benefit the bottom line by delivering best value. Nowhere is this truer than with group income protection.

I come across many firms who do not fully understand what they are getting from their group income protection cover, so it is hardly surprising they are failing to choose the right scheme.

Some just renew what they had the previous year, whilst others switch to rival providers quoting cheaper premiums. Both approaches are fraught with danger if they are not preceded by a detailed consultation exercise.

What many employers fail to appreciate is that the better group income protection schemes nowadays provide far more than simply a core insurance mechanism that pays a regular income when employees are unable to work due to long-term sickness or disability.

They offer a host of added-value features such as early intervention and rehabilitation services, employee assistance programmes (EAPs), second medical opinion services and care advisory services at the point of claim.    

Indeed, these additional free services are arguably worth more than the insurance element, particularly as the early intervention facilities get many employees back to work before they actually need to claim.

This has been a particularly important development in tackling mental health problems in the workplace. At a recent Madrid seminar written up by Corporate Adviser magazine, Canada Life cited figures showing that since it introduced its early intervention pathways in 2014 the percentage of mental health absences had reduced by a third across like-for-like populations.

At the same seminar the insurer also presented a case study demonstrating the importance of avoiding false economies. An employer paying £700,000 in annual premiums had been offered cover for £100,000 less by another insurer that did not have early intervention services. But, because  the insurer got staff back to work sooner, it saved the employer 1,682 days of absence – amounting to a salary saving of £256,000!

It also challenged the steadily growing trend towards employers taking out limited-term group income protection schemes which pay out for a maximum of five years or less – as opposed to until retirement , the more traditional schemes.

According to Swiss Re’s Group Watch 2018, in 2017 21.9% of employees in group income protection schemes had cover for a maximum of five years and 16.0% had cover with shorter-term maximums like two or three years. The corresponding proportions for 2013 were 16.8% and 13.1% respectively.

These limited-term schemes undoubtedly have a place but employers should be careful to look before they leap. At the same seminar the insurer highlighted  that 71% of its claims costs come from claims in payment for more than five years. It also argued that the limited-term approach was originally introduced not to save money but as a first step into group income protection before extending to retirement age.

Additionally, employers should be aware that some insurers – particularly new market entrants – offering to undercut current group income protection providers may not be offering sustainable rates in an increasingly challenging environment.

According to Canada Life, the cost of delivering group income protection benefits has risen by 15% since 2009 whist average premium rates have fallen by 20%. Changes to the State Pension age and to State Employment and Support Allowance (ESA) and Work-Related Activity Component (WRAC) benefits have all contributed, as have ageing workforces and a greater awareness of mental health issues.

It is therefore more important than ever that employers choose their provider and the type of scheme they want after appropriate consultation.  Keeping your employees, who are your main assets, at work should be a higher priority than shaving a few pounds off annual premiums. 

If you would like to learn more about how Chase de Vere can help you select the most appropriate group income protection scheme then please do not hesitate to contact us on 0345 300 6256 or complete this simple form and we’ll call you.