Market surveys are nothing without analysis. Paul Avis finds Swiss Re's latest highlights a few worrying trends in group markets but also a number of opportunities.
Where is the good news in the latest Swiss Re Group risk market statistics survey? On the face of it there seems little bad news. With a 4% market increase in group life, a 0.1% increase in group income protection, and a 9% increase in group critical illness, leading to a cumulative 3% increase for the whole market to £1.53bn, all seems wonderful in the group risk marketplace.
But is it? Or does a deeper dive show that areas such as increasing headcounts are masking fundamental pricing issues inherent within the marketplace? Do all insurers and advisers understand this or only those with the biggest books?
Also have the impact of commission losses been fully understood by our marketplace? While 2011 single-digit market size increases indicate that organically we will be paying more as insurers, is this in the right product sets?
If we take group life as a start point, the market grew from £919m to £956m premium but at the same time there was an increase in scheme members from 7.86m to 8.21m – an extra 346,387 people or 4.4% increase compared to the 4% increase in premiums. The cost per capita has remained roughly the same at £117.
This can in part be described as older ages having larger sums assured which indicates a further key aspect missing in this pricing – the impact of ageing in the workforce.
This can be up to 10% per annum for every year the workforce ages. At Canada Life, we have seen our insured scheme membership age by 0.8 years over the past two years and yet this is not immediately evident in increases in market rates.
Schemes renewing in 2011 showed fewer younger employees have been employed in this period and many older employees are staying on (often due to deficient pension pots).
In addition, insurers often provide a further two- or three-year rate guarantee and, assuming the current broad trend of lack of younger recruitment and older employee retention continues (post-DRA removal now, too), it could mean further rate increases should be expected – purely on the basis of ageing.
At the moment, this is not being fully reflected in market premium increases and is compounded by the number of extra employees being covered while increasing sums assured.