Katharine Moxham highlights the opportunities and challenges for the group risk protection market and five recent changes that will affect employers
Group risk insurance policies are used by employers to cover a promise to pay a benefit in the event of an employee's death, illness or disability. These benefits go a long way towards protecting employees and their families from financial devastation if the worst happens.
Whether they are the only benefits on offer or provided as part of a wider benefits package, group risk benefits (employer-sponsored life assurance, income protection and critical illness benefits) can give employees access to insured financial protection cover they might not be able to afford or access for themselves (for example because they have a medical condition). Group risk benefits provide a business with a low-cost way of doing the right thing at a time when people need it most.
Challenges and opportunities
Research undertaken by Group Risk Development (GRiD) regularly highlights that one of the main barriers to businesses offering group risk benefits are perceived costs - with many employers greatly overestimating the actual costs involved. That aside, when an employer is concerned about costs, this can mean they don't really understand the value of a product or what it does. There will always be demands on budgets, so it's imperative to be able to make the business case for group risk financial protection and all that comes along with it.
It's easy to appreciate the difference a group risk pay-out can make to a family but group risk providers have also worked hard to offer employers daily value from a policy that they may rarely, or never, claim on. Thus insured group risk products give access to extra support services that can be extremely effective at keeping people in (or returning them to) the workplace, and supporting them through difficult or challenging times.
These can include preventative support, stress management, fast-track access to counselling, second medical opinion and more. Employers increasingly recognise the value to their business in having a healthy workforce, so group risk protection support is moving forward to include help here too, for example giving access to GP services, health tracking apps and mental health support.
Communicating all of this alongside the core insurance is key to getting best value. Employers will also find that, increasingly, the support services are available to the entire workforce, not just the insured population, and there is also help for line managers and business owners - giving daily value, even if a claim is never made.
It can be useful for employers to see how group risk benefits can be a real differentiator when it comes to recruitment and retention, how they help to fulfil their duty of care and obligations under the Equality Act, plus how they give access to so much more than just financial support.
Employees watch how their colleagues are treated and a failure to 'do the right thing' can be costly in terms of lost morale and engagement.
Smaller employers are less likely to have HR or reward specialists but will often find access to exactly that kind of advice within their group risk purchase. The smaller business may feel the impact of having a member of staff absent more keenly and will appreciate the expert help and advice that providers can give in terms of managing their absence situation.
Legislative changes are always challenging for businesses. The latest are no exception but they also present opportunities for working more closely together. Employers offering group risk financial protection for their staff need to be aware of five key changes:
The Department for Work & Pensions/Department of Health Joint Policy Unit's Improving Lives: The Work, Health and Disability Green Paper
Group income protection has been recognised as playing an important role in supporting employers' health, wellness and attendance programmes within the green paper. As a result of the consultation, GRiD is proactively urging the government and industry to step up to play their part in raising awareness of the importance of occupational sick pay and vocational rehabilitation in achieving financial resilience.
Although the consultation closed on 17 February 2017, the dialogue continues and employers need to keep a watch on developments as reducing the employment disability gap and supporting ill or disabled employees becomes more central.
Unlinking group life from pensions The government's consultation on pensions tax relief is on hold, but we anticipate that this will be resumed, especially after the recent U-turn on National Insurance rises for the self-employed.
The link of death benefits with pensions legislation is a challenge, especially given the reduction in the Lifetime Allowance. We believe there should be special consideration of group death in service benefits if pension tax relief is reformed, and will be making a case for a separate tax regime to be established for death benefits to ensure that damaging unintended consequences are avoided. Employers need to watch for progress on this situation so they can be prepared for any potential impact.
Unlinking group income protection from state benefits The reduction of Employment and Support Allowance (ESA) from April 2017 will impact most group income protection policies (which generally make a generic offset for state benefits). In current terms, this means that new ESA claimants who are placed in the work-related activity group will receive the equivalent of Job Seeker's Allowance (£3,801) instead of the current £5,312 a year. Advisers and group risk providers will be working closely with employers to review group income protection benefit design to ensure there are no shortfalls in cover.
Insurance Act Employers insuring benefits must review their data-gathering processes so as not to fall foul of the Insurance Act 2015 which came into effect in August 2016.
This places more responsibility on employers and advisers to ensure the right information is made available for insurers to accurately assess the risk they are taking on; for example, full and accurate details of people who are absent and why.
Group risk benefits pay out in dreadful circumstances for employees and their families and all those involved in their set-up and ongoing operation must act with due diligence and care. Employers should seek expert advice on the potential impact of such changes to ensure there are no shortfalls in the cover they offer their staff.
Salary sacrifice Draft legislation limiting the range of benefits that attract income tax and National Insurance contributions advantages when provided as part of a salary sacrifice arrangement has now been published. This exempts death in service schemes written through a registered pension scheme but excepted group life policies and group income protection fall within scope of the changes.
Employers will be working closely with their group risk providers and advisers to ensure they get value for money within their flex programmes. Key to this is effective use of the extra supportive services, since this can release budget to spend elsewhere.
Nothing stands still - employers are facing some significant challenges over the coming months and now is the time to offer expert advice and build strong tripartite relationships between employer, adviser and provider. Working together we can continue to develop extraordinary solutions to help employers and their staff.
Group risk basics
Group life assurance provides a benefit on an employee's death in service. This can be a tax free lump sum (up to the Lifetime Allowance) payable to nominated beneficiaries or a taxable pension payable to the employee's dependants, or both. It is possible to provide benefits in excess of the Lifetime Allowance but expert advice should be taken on this.
Group income protection is a policy taken out by an employer to cover a promise to provide sick pay to employees if illness or injury prevents them from working for a prolonged period. Group income protection providers support employees to help them return to work with reasonable adjustments made by their employer, but if the employee cannot work due to illness or injury the policy will pay a benefit of a proportion of their salary. The benefit is paid to the employer and then passed on to the employee through the PAYE system.
Group critical illness is a policy taken out by an employer to pay a tax-free lump sum to an employee if they are diagnosed with a serious medical condition or they undergo a defined surgical procedure. Group critical illness is increasingly being provided on a purely voluntary basis as part of a flexible benefits arrangement.
Katharine Moxham is spokesperson for Group Risk Development (GRiD) the industry body for the group risk protection sector. Follow on Twitter @KMoxham