The practice of offering the holding insurer final refusal on group risk renewals is commonplace throughout the sector. But, John Ritchie asks, is it harming you and your clients' business?
It can be difficult to kick some habits, especially unhealthy ones that seem to offer instant dividends.
In the group risk market, one such habit is the practice of offering insurers holding group risk schemes the chance to match the best rates obtained at reviews. Some readers may be asking: what’s so unhealthy about that?
At first glance, perhaps not much. The client is getting cover at the best rate available at any given time and the adviser is delivering the cost saving through having tested the market on the client’s behalf.
Though dig beneath the surface and the flaws inherent in the practice start to emerge, not least the negative impact that an extended review process can have on the advisory firm’s productivity and profit margin.
There is much that is good about the group risk market. It is certainly competitive on price. It is almost, in economic theory terms, a perfect market.
But up close, it is often just a handle-turning exercise that is a defensive tactic for the incumbent adviser to check price.
Those clients whose scheme structures are not proactively reviewed from first principles may have arrangements that are far from optimal in both price and quality terms.
This is undoubtedly the case where catastrophe or event limits have been a first order issue for the client.
Habits of thinking can be well anchored, too. The common perception that it is risky to switch schemes to a new insurer that something or someone will fall through the gap bears some examination.
The ease with which large sums assured are provided, thanks to advances in underwriting practices at both scheme and member levels, has been continuously improved.
Free cover limits generally have increased over time. Forward underwriting bars, allowing increases in members’ cover without the need for further underwriting got so generous that they have almost inevitably ended up being largely superseded by ‘once and done’ underwriting.
Due to the competitive nature of the market, as one insurer pushes the limits further, others are compelled to do likewise.
In addition, to have any hope of winning existing schemes, all insurers have to accept the underwriting decisions made by previous insurers in the vast majority of cases – at ‘no worse terms’.
This helps to make it very easy for schemes to switch from one insurer to another. The same is true for long-term absentees.
Employees who are off sick or in receipt of income protection benefits stay fully covered for their life insurance if their scheme switches.
Finally, several traps that used to lie in wait for switchers of schemes one example used to be over which insurer had responsibility for members not actively at work on the actual day a scheme switched have been made safe, largely under the auspices of Group Risk Development (Grid).
Group risk insurance is a terrific mechanism for delivering large amounts of cover to millions of people with the minimum of paperwork required and at very low cost.
The market operates very efficiently so as not to leave any exposure to uninsured benefit promises with the sponsoring employer, trustees and members.
In fact, it is something of a communication failure that group risk is not recognised as a huge part of the foundations of risk management and welfare provision in this economy
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