Slow and steady may win the race, but group CI has a long way to go before it can contemplate overtaking other products in the group market, let alone individual CI, explains Edward Murray Click here to download pdf (PDF, 2.4MB)
According to figures from the Swiss Re Group Watch 2008 report, annual market premiums for group risk have risen by 5.2% from £1.51bn in 2006 and now stand at £1.59bn for 2007. Looking specifically at the group critical illness (CI) market, in force market premiums totalled £37.2m and were up 7% on the £34.7m for 2006.
The group CI market is therefore still a relatively small player in the context of other group benefits available. However, although it is coming off a very low base, the fact that since 2003 annual premium income is up by 75% has to be viewed as encouraging, if not overwhelming.
In force sums assured in the group CI market stood at £15.4bn for 2007, up from £13.5bn in 2006, while the number of lives covered under group CI schemes have jumped from 229,998 in 2006 to 264,197 in 2007.
Given the figures involved, nobody is getting over excited about the group CI market and most providers are keen to see if it will continue to grow into something that genuinely makes a difference to their overall business, or simply remains a niche product.
As Peter Fenner, communications consultant at Bupa Group Risk, comments: "Group CI has been something of an experiment in terms of product development ever since its introduction. At the moment, business volumes justify continuing with the experiment, but it is still some way from group CI being a standard part of an employee benefits package."
Fenner expects the recent market growth to continue, but is also keen to point out there is some way to go before group CI can be seen as an established and permanent fixture.
He says: "At some point, it needs to attain a critical mass where it becomes the norm rather than the exception for companies to offer it to their employees, but at the moment we can only see this happening in the context of flex arrangements."
Tight purse strings
But why are employers not willing to pay for this protection even though they seem increasingly happy to offer it as part of a flexible benefits scheme?
The truth of the matter is group CI has little to offer the employer and particularly so when compared to other products in the group protection market. With a product such as income protection (IP), there are very clear benefits to the employer. The treatment received by members of staff should see them get back to work as quickly as possible, and while they are absent there is provision within IP policies to cover costs such as the employer's National Insurance and pension contributions.
In contrast, group CI simply offers n cont. p.38 employees a lump sum. While there is no doubting how important this will be to those afflicted by a serious disease, it does little for the employer.
As such few employers go out of their way to pay for CI cover for staff, although more have begun to include it as one of the options on their flexible benefit packages. Glenn Laming, sales director for group protection at Legal & General, comments: "There is no evidence that more employers are taking this out as a benefit but where offered as part of a package it is very popular. The growth is in flexible benefit schemes."
Therefore it seems there are two challenges to be negotiated. The first is to try to maximise the growth potential of group CI as part of a flexible package and the second is to try and make group CI more popular for employers.
In the past it has only really been viable for large employers to offer flexible benefit schemes, but this has changed over recent years. Laming says: "In the last five years there has been significant development of more straightforward online flexible benefit schemes."
Laming is not so much talking about the products offered through those schemes, but the way the schemes themselves are run and administered, making it easier for smaller employers to offer them to staff on a basis that is sustainable and viable into the future.
Indeed, he says in the past the target market for such schemes might have been companies with more than 2,000 employees, but believes the threshold has now dropped to something closer to 500.
Nick Kirwan head of health and protection at the Association of British Insurers agrees a growing number of firms are re-evaluating their benefit schemes and this combined with the wider availability of schemes for smaller firms will work in the group CI market's favour.
He is also keen to point out the potential that exists for product providers to perhaps bundle up some of the insurance they provide and use this method to give group CI a wider reach.
He says: "There is the potential to offer bundled products in the future. Should, for example, CI and private medical insurance (PMI) be bundled? By doing so you could keep the cost of the PMI down by excluding certain things which were then covered by the CI policy."
We've come a long way
Standing back and taking a slightly wider view of the CI market, Kirwan says providers across the board have benefited from the work that has been done by the industry over the last few years to improve and standardise definitions and policy wordings as well as tightening up issues around disclosure.
While the consumer's perception of the market will always lag behind its reality, he says there is no doubt people increasingly see CI as a product that will pay out for them when required and that the market's reputation is definitely moving in the right direction.
Over and above the work achieved in trying to improve the CI market generally, some individual companies have also attempted to make group CI a more attractive proposition for employers.
Whether this will actually see employers become more willing to pay for group CI remains to be seen but it should certainly help in persuading them to include it as a benefit if they are offering a flexible scheme.
This is certainly how Aegon Scottish Equitable views the market. It has teamed up with Red Arc Assured to offer clients access to an independent care advisory service. Not only does it believe this service will help individuals cope with their circumstances better and help them back to work where possible, but it also believes that employers will benefit from the service by gaining a better understanding of the practical implications of their employee's illness.
For those trying to come to terms with seeing a colleague struck down by a critical illness, the service will also let employers offer counselling and support to help them deal with the situation and the emotions it generates.
Simon Bailey, head of marketing for employee benefits at Aegon Scottish Equitable, says: "We believe this makes our group CI more attractive to both the individual and the employer."
Bailey also believes that as senior staff who have bought into these developments move to new firms without such benefits, they will add momentum to the market and persuade their new employers to offer such products in the future.
While 2007 was another good year of growth for the group CI market, there is no escaping the fact that at the moment it still plays second fiddle to the rest of the group protection market and is still dwarfed by the individual CI market.
However the market continues to grow and even considering the low base, the rate of growth is encouraging. If the market can maintain this momentum, then it will begin to create a momentum all of its own and this is really what providers are hoping for.
As Fenner concludes: "As the number grows, more people will come into contact with people for whom group CI has made a big difference to their lives. Nothing would beat having more personal advocates for group CI."
Edward Murray is a freelance journalist.
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