Group Critical Illness: Squeezing the best out of a tight market

Businesses are seeing budgets stretched in many ways, but, as Owain Thomas found, advisers who are creative with solutions could produce a windfall for themselves in the group critical illness market

Critical illness (CI) has a good take-up rate because everyone knows someone who has had either a heart attack, a stroke or cancer.

Being about a tenth the size of the group income protection (GIP) market and about a 20th of the group life one means it has some ground to make up.

But while both these sectors are largely stable, the group CI one is a consistently growing market that should warrant the attention of insurers.

Alex Pickard, senior consultant at PMI Health Group, agreed the market was still in its infancy and likely to develop slowly but steadily in the short term.

“It’s still very much a smaller sibling to group income protection and group life in terms of peoples’ aspirations for it and their queries,” he said.

“With private medical insurance (PMI), we have 1,600 corporate clients, but only a handful of CI schemes and most of those tend to be flexible benefit ones.

That’s what we’ve seen over the last few years and expect to continue largely employee-funded and collected through payroll.

“The benefit doesn’t do as much for the employer as GIP and so they’re less willing to fund it, unless it’s an executive perk,” he added.

CALM AMID THE STORM

That is not to suggest CI is a shrinking or stagnant market far from it. As recent figures from Swiss Re showed, it ­maintained steady growth in 2010.

But this movement towards flexible or employee funding is one of the main issues most working within the market note as a constraint on it, reaching a similar level to that of GIP or life.

For this to happen, employers will have to be ­encouraged or find reasons to fund it themselves. But this might be easier said than done.

“If employers are going to be persuaded to part with their money to fund CI, they would need to see some clear benefit for themselves and it’s quite hard to establish that,” Pickard continued.

“People talk about its importance for retention, but that’s quite hard to quantify and quite soft, really. Until employers can see tangible benefits for themselves, I can’t see them rushing to fund it.

“Just off the top of my head, maybe providers could offer a dual benefit that pays to the employee and to the employer so that they can fund a replacement in the original employee’s absence,” he added.

One of the great unknowns in the group risk and employee benefits market is the introduction of the National Employment Savings Trust (NEST) next year.

Predictions about its success often swing from one extreme to the other. But with no protection element included in the pension savings vehicle, it is likely to be down to advisers to push this subject into employers’ spotlights.

Pickard, for his part, queried whether bosses would have enough money available to fund things such as group CI when NEST is introduced.

“Spending afresh on new benefits is going to be squeezed. So, certainly for the foreseeable future, I see CI going down the flex or voluntary route.

“NEST is an opportunity to talk to people about what they want to do. But given that we’re coming out of a recession, even if company finances are doing OK, CI may get lost in the pecking order when it comes to an ­overview,” he surmised.

Arguably the key defining aspect of the individual CI market is the definitions war being fought out by providers, whether that be purely in number of conditions covered, or more recently, those done so to ABI+ level.

Happily for the group arena, this arms race has not proved contagious meaning that generally, products cover the most commonly claimed-upon conditions, usually to ABI+ standard.