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The Actuary The magazine of the Institute & Faculty of Actuaries

Welfare Reform Act signals change in GIP market

The design of Group Income Protection (GIP) products could change significantly under the new Welfare Reform Act. The Act is predicted to impose stricter criteria for access to state benefits. This means that the assumed level of deductions for state benefits in current GIP products may be too high. This is likely to lead to challenges from group scheme members.

Jamie Winter, head of healthcare for Watson Wyatt, said: “We know from recent feedback from employers that they are generally unhappy with their existing GIP designs, which have often been in place for many years and have not really altered in all that time. The Welfare Reform Act, therefore, offers employers an opportunity to address not only those areas of the design that are directly affected by the Act but also to consider other design approaches that have developed in recent years.”

A number of design options have been agreed with the major insurance providers and can now be offered. “For example, it is now possible to ignore state benefit values entirely within the GIP design, thereby achieving far greater simplicity,” said Winter. “Another option is to deduct the actual amount of state benefit received by each individual claimant.” Other options available include reducing the term of the policy or applying more restrictive definitions of disability over time.