Personal accident insurance remains a hugely undersold product, which means many intermediaries are missing an opportunity to generate valuable revenue, says Neil Thunström
Personal accident insurance (PA) is relevant to virtually every business in every commercial sector, making it a powerful and flexible tool for brokers to use in their dealings with both existing and potential clients. Also, the sales proposition remains robust even in times of economic stress. Indeed, it may be more relevant than ever when policyholders need to build solid defences against threats and dangers.
So why is PA such a Cinderella class of insurance? One reason may be that, historically, it has fallen between two stools – is it commercial insurance or health insurance? Is it unduly complicated and difficult to sell? Does it take a lot of effort to administer? Will it generate endless claims and become more trouble than it is worth?
The answer to these questions is that PA allows businesses to insure their people in the same way they insure their plant, machinery and vehicles. If these inanimate objects deserve protection, surely the people who operate and use them do so as well? That’s a simple and irrefutable notion, answering objections relating to relevance.
And if the broker works with a pro-active and energetic insurer, any anxieties about the work involved in servicing and administrating the product can also be put to one side.
The impact of economic conditions cannot be underestimated. It might reasonably be concluded that insurance buyers will be looking to reduce spend rather than take on a new type of cover. But if they have reduced staff levels to cope with the recession, they will probably recognise that the importance of key individuals in the day-to-day running of the business has been heightened.
The broker is in effect saying to the client that the price of running a smaller team, where each member is proportionately more important, is that each member must be better protected. It’s simple asset protection.
This broad argument should be enough to get the client’s interest. This can be cemented by extolling the virtue of PA cover in terms of its flexibility. It can be tailored to meet the precise needs of the business in terms of cover required and budget, ensuring that the policyholder derives maximum value from the outset.
For example, there are no rules about the number of employees or size of premium, so it is just as relevant to a small or medium-sized enterprise as it is to a big firm. Indeed, it should be seriously considered by any business whose success or failure relies heavily on the expertise/skills of its key people. The greater the dependence on particular individuals or teams, the greater the need for cover. And remember, cover can be targeted where it is most required – there is no obligation to insure everyone in the building.
Understandably, some policyholders think there is significant overlap between PA and employer-arranged private medical insurance (PMI) – and that, if they have the latter, the former would be superfluous. But PMI is different in that, while the employer is the policyholder, it is the member of staff who receives the benefit in the form of treatment. With PA, the policy is taken out by the employer and it is the employer that receives the benefit if and when an insured event occurs, such as injury to a named employee. Thus the employer decides how the money is spent.
So PA and PMI are in fact complementary. And if a broker is able to handle the running of a typical PMI scheme, a PA contract should certainly present no huge challenges.
Some firms choose to cover all employees. Others select elements of the workforce, perhaps focusing on managerial levels and key staff – those with valuable experience, skills or market knowledge whose loss would have an immediate and severe impact on the business. It is also possible to arrange different levels of cover for different individuals or categories of staff, further reflecting their value to the whole operation.
The policy benefits can be arranged as lump-sum payments in the event of accidental death or injury (loss of sight, loss of limbs, permanent disability, etc), or as temporary benefits to cover someone being absent from work for a few weeks (for example, with a broken leg).
As noted, the employer has sole discretion over what to do with the policy proceeds. They can for example, use the money to:
- Cover sick-pay for the injured employee.
- Fund overtime payments for other individuals until the injured person is able to return to work.
- Cover recruitment costs to source a replacement employee, either on a part-time or full-time basis.
- Adapt the business premises to allow a disabled person to return to work, modify a piece of equipment they use, or purchase specialist disability aids or mobility vehicles.
- Make payment to the employee’s dependants.
- Any combination of the above.
Another example of the policy’s inherent flexibility is that cover can apply either on a 24-hour basis (covering staff at all times), or on a selected ‘operative time’ basis set by the policyholder. Examples might be occupational accidents only or, perhaps, occupational and commuting accidents only. The possibilities for other bespoke operative times are numerous.
It is also possible to guard against catastrophe. For example, what if the sales team is travelling together to make a key presentation, or senior managers are flying to a conference? The policy can take such risks in its stride – which is vital when the loss of an entire section of a business could lead to lost orders and thus lost revenue that is necessary to keep the business going.
The policyholder can also choose the amount of benefit and the length of time for which it will be paid, which affects the premium, and thus allows it to allocate budget to protect the business against the short-term, long-term or permanent loss of a valuable employee(s).
It is also worth noting that PA is a non-negligence cover. This sets it apart from liability covers where, as the name suggests, liability must be established and where the (often inevitably) protracted claims process can lead to long delays in claims settlements, sometimes stretching into years.
Indeed, it might be that the early and prompt settlement of a claim under a PA policy could give the employer the ammunition to anticipate and prevent an injury claim under an employer’s liability policy.
The potential for PA to become part of the employer’s employee benefits package should not be underestimated (in the same way as PMI). If the employer tells insured individuals that the proceeds of the policy will be made available (in full or in part, as preferred by the policyholder) for the benefit of the employee and his or her family or dependants, the employer will no doubt be seen in a favourable light.
As mentioned at the offset, businesses automatically understand the importance of insuring their tangible assets against standard perils. But what about the people who operate the machinery, or make the sales, or generally ensure the smooth running of the business?
PA need not be expensive, especially given the variations that allow the insured to derive maximum value from a limited budget. But it is a class of insurance that can make the difference between survival and failure for a business that is struck by misfortune.
Neil Thunström is head of personal accident and travel at Groupama Insurances
