Advice is key to future growth in the employee benefits market. Simon Bailey explains why more intermediaries should look to the workplace to build new business
The employee benefits market currently represents an exciting opportunity for all financial advisers, whether part of a large consultancy or a smaller local firm. The market is estimated at £1.2bn revenue premium, and - given the level of change currently being experienced within the business-to-business market - we should continue to see increasing opportunities and growth rates.
There are a number of significant changes affecting this sector - but while these issues might appear to complicate the market, they also create considerable opportunity. For example, the Government's focus on welfare reform is likely to encourage businesses to increase the protection they offer staff, while also making such benefit provision more valuable to employees. Changes in pension provision - from defined benefit to defined contribution - have also raised awareness among employees and driven demand for employee benefit schemes which can more closely match individual requirements. Finally, increasing legislation, such as the Disability Discrimination Act, requires disability products to become much more focused in helping to resolve employers' issues.
The market for employee benefits can be split into three distinct areas. These are employer-paid, flexible benefits and voluntary arrangements. Each area addresses distinct customer requirements - which financial advisers need to understand, so they can provide solutions that meet the needs and budgetary considerations of customers. The good news is that, despite the fragmented nature of the business market, there are a number of solutions available.
Irrespective of the market sector, providers and financial advisers must now, more than ever, focus on employer benefits as well as employee benefits. In the majority of cases, it is with the employer that the contract is made, and it is employers' time and resources that are required to make the scheme successful.
Moreover, the days of the paternalistic employer, and the retention and recruitment argument as the rationale behind provision, are rapidly disappearing. Companies now need to see more tangible benefits from any expenditure that they undertake. Consequently, employers' needs must be the primary consideration.
A big opportunity
With only 20% of companies that employ 10 or more people in the UK providing some form of group risk benefit, there is undoubtedly a considerable opportunity to increase employee benefit sales. The key to tapping into the group risk market is to have a clear understanding of it, as it cannot be treated as one homogeneous mass.
A good starting point is to understand the types of companies that currently already buy group risk products, as they provide a "footprint" that can be used to identify prospects for new business opportunities. A typical customer will often have between 30 and 250 employees, will have been established for more than 15 years, and have more than one site. The company may also be involved with some international activity and be part of a larger parent group, rather than being independent.
Although, inevitably, there are many large corporate clients already in the employee benefits market, this profile does indicate that opportunities in group risk are not exclusively to be found among the blue-chips. Companies that are accessible to the majority of advisers will also have an interest in, and demonstrate a need for, these products. It is within the small and medium-sized enterprise (SME) market that real expansion opportunities can be found.
By utilising some of the simple customer characteristics outlined, advisers should be able to ensure that they adopt a more consistent, targeted approach. This will improve conversion rates and make this market a more profitable arena for all involved.
It is vital that we continue to seek to expand the market. Growth, although impressive, has been driven by changes in premiums over and above actual new schemes entering the market. It is this challenge that any adviser with business contacts can address. With the income protection gap - that is, the shortfall in cover currently affecting the UK population - estimated to be £130bn, according to Swiss Re, there clearly is an opportunity for real growth, which advisers can look to maximise.
This shortfall provides an excellent opportunity for advisers not only to raise awareness among their clients, but also to offer solutions tailored to suit a wide range of budgets. The question of how best to plug this gap still remains largely unanswered.
Despite the opportunity to increase individual sales, advisers should not underestimate the opportunity that exists through seeking group business solutions. Given the recent demise of final salary pension schemes, however, it is particularly important that employers look to replace the loss of ill health early-retirement benefits by implementing a comprehensive employee benefits package.
Good marketing
Essentially, it is as easy to tailor solutions to meet the needs of businesses collectively as it is for individuals. It can, in fact, be argued that the protection gap is so big that the only successful way to bridge this gap efficiently is through the generation of new group schemes.
Looking at alternative forms of distribution also has merit when considering how best to enter this market. One variation on the traditional distribution model is a move towards workplace marketing, which represents an alternative way to enter this largely untapped market.
Workplace marketing has become something of a hot topic in the world of employee benefits. The reason for its rapid rise in popularity can be attributed to two key factors. First, it enables greater communication of the benefits of protection products to the end user - the employee - and allows them to choose benefits to suit their lifestyles. Second, it does not require such a tremendous commitment of resources from employers, either in terms of time or cost.
Combined with a background of increasing awareness among employees of the need to fend for themselves than rely on the State, and the fact they are having to take a more pro-active approach with their pension provision, this new approach offers real potential.
Workplace marketing provides advisers with the opportunity to discuss customers requirements at a more holistic level, including not only long-term savings, but also future protection and complete financial planning. By combining all elements, individual employees will be able to perceive the benefits of the products available - and this should help drive take-up rates up.
Sound advice
While the argument for a move towards workplace marketing is clear, it does not negate the adviser's duty to deliver the correct level of protection. Group risk and employee benefit packages are dependent upon good advice if they are to be structured to meet the company's more strategic objectives. There are an array of challenges facing companies in terms of the level of benefit provision - for example, the aforementioned move from defined benefit to defined contribution pension schemes, which can produce a need for a more extensive benefit package to plug some of the gaps.
That said, it is important to bear in mind that the one-size-fits-all approach simply does not work.
Each organisation has a distinct corporate culture and a unique approach to remunerating and motivating its staff. The intermediary can play a key role in exploring what is available in the market and then designing the appropriate package for each individual client. This is true at both corporate and SME level. As far as SMEs are concerned, they do not have time to undertake such a review and may well not be aware of the possibilities and benefits available from cover. For corporate clients, benefit provision takes on other forms in terms of flexible and voluntary benefits - and companies require assistance in establishing, promoting and administering such schemes on a long-term basis.
The market for employee benefits represents a world of opportunity. But it is a world which relies on a commitment from employers to offer such products; education and guidance from advisers; and a product design from providers that meets today's employers' requirements.
Simon Bailey is head of marketing, employee benefits, at Scottish Equitable
COVER notes
oOo-#149; It's not just blue-chip companies that require employee benefit packages - SME clients also need cover.
oOo-#149; Workplace marketing allows for greater communication of the benefits of protection to staff and helps save employers time and money.
oOo-#149; Advisers who go into the workplace can discuss clients' needs on a more holistic level, encouraging individual and group sales.
