Group Income Protection: Time to rock the boat?

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With many legislative changes in the works, the group risk market is hesitant at present. Owain Thomas examines the bigger picture of what is to come for group income protection.

“It should be advisers educating these people because it’s very hard in terms of product literature to say any more than what is said by providers, so face-to-face communication is the only way to get the message across.

“And it’s very simple – one is a lump sum benefit and the other is a continuous income. It’s not difficult to understand, but there is just a lack of knowledge within the client market.”

Silk’s sentiments are not universally shared by advisers in the sector, though. John Kerr, director of Kerr ­Henderson, feels the government should go further than just its current welfare reforms.

“If we could get in compulsory IP from the state, that would be brilliant,” he said.
“It would be a brilliant opportunity for us, but whether the group risk industry is ready to cope with that deluge of business, I don’t know.

“But is it not, in effect, the way it’s going to go? We’re moving into a period where more and more is being off-loaded from the government on to the employer and you could well see it happening,” he added.

Managing the changes

Although it is unlikely the government will rush down this route – and it is one many in the market are publicly against – there is a feeling among the protection industry that providing more formal support to the state benefits system could be edging closer.

But that may have to wait until a potential second term for this coalition government to crystallise.

Another difference in view is that of shorter benefit terms or reducing group life coverage to two or three times salary to accommodate GIP.

While Kerr accepts that getting something in place is better than nothing at all, it is certainly not his preference.

He said: “I want to see people buying IP in addition to group life, not cutting it down. I think to try and get something in place would be better than nothing – if we could try and educate that.

“And it might breed a new type of policy where the employer would provide a base line of cover with a top-up, but I suppose that would be called ‘flex’.”

However, as Kerr noted, flexible benefits has not really grown into the SME sector – something he thinks it could do reasonably well in.

Addressing a lack of consumer understanding is something the group market shares with the individual one.

But tackling it may be even more important in the short term, given the imminent introduction of auto-enrolment and the National Employment Savings Trust (NEST).

With bosses being compelled to offer a pension plan enrolment for their staff, many within the group risk industry are arguing this is a crucial time to educate employers and introduce ideas surrounding other benefits.

While this may not pay off immediately, it is clear the group risk market is being given a massive opening for the future.

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