A sting in the tail

There has been much to smile about this year in the group life market, but as Owain Thomas discovers, there is still one problem that could see advisers on the hook for millions of pounds in uninsured liabilities

In most areas of life, technological advancements are pushing the boundaries of what can be done and the speed in which it can be enacted. Online presences are a primary concern and being able to process customers’ data securely and efficiently is essential.

So it is good to see that the group life market is finally dragging itself kicking and screaming into the 21st century.

However, while progress has been made on increasing the automation and ease of reviewing scheme renewals, there is a danger lurking beneath the surface that could, if ­unaddressed, lead to dramatic consequences.

That danger is the looming A-Day deadline, where the notional cap for insured benefits on group life schemes is set to be finally removed for the introduction of simplified tax rules by HMRC. These were introduced on 6 April 2006, but the industry was given a five-year implementation period that ceases this month.

The decision’s onus fell on scheme trustees to ensure that the group’s present rules do not leave it exposed to massive potential losses from a death-in-service claim.
That this issue had such little publicity until recently had alarmed John Kerr, director of Kerr Henderson Financial Services. He feared there could a bitter pill to swallow.

“Why wasn’t there more on this?” he said. “We knew it was coming, we’ve had an awful lot of time to prepare and yet all of us seem to have been caught with our pants down. Pretty much nobody has done anything about it.

“But what’s interesting is that from talking to the various insurers, each of them has a slightly different approach at times – it’s been quite confusing.”

Kerr believes there will be a disaster, which involves a scheme not being covered for the liabilities for its staff, and feared that the buck for this problem may stop with the scheme adviser.

“The funny thing is, whose professional indemnity policy will it bounce off?” he warned. “Will it be a trustee indemnity or an adviser indemnity? Who knows? But we’re certainly looking at it and trying to get our clients to review it quite seriously at the moment. All advisers should be contacting their clients to look at this. We’ve been through our client bank to try to identify what schemes are pre-A-Day and what schemes aren’t.

“Potentially, if an adviser does not bring it to a client’s attention, they could be held at fault for not having done so, especially where there are people affected. So I think it’s quite a big risk.”

RUSHING FOR A-DAY

While the possible fallout from the deadline has concerned Kerr, he is largely positive about many of the changes in the market over the past year, witnessing the aforementioned technology improvements.

A hardening of prices by most providers appears to have happened too, aside from one provider “dropping its pants on their minimum premiums”.

“Online accessibility is becoming quite important,” Kerr continued. “Each insurer is moving towards an online portal and clearly trying to encourage a lot of business through that way.

“Whether it’s a lot more convenient for us, I think the jury’s out on that one as we have to enter the same information multiple times in slightly different ways and each data upload has to be tweaked, too.

“Trade body Grid was working towards an online portal, but doesn’t want to become a trading company, so it’ll be interesting to see where that one goes. But pretty much every adviser around the table with SME business saw that as the way forward,” he concluded.

There are other currents running through the market. Free cover limits are ever increasing, as is one-time underwriting. And the overall hardening of rates seems to be a turn in the market.