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.
Death in service pension premiums have increased by 2.8% to £150m. However, with capitalisation factors needing to increase due to the continuing impact of low interest rates on long-dated bonds (generally used to match liabilities in payment), the impact ageing, and the increased cost of providing an annuity for potentially 30-40 years, payment is not being fully reflected in the cost.
Once again, with the number of employees covered increasing by 3.7%, this market, like lump sum benefits, is still a soft one. As with lump sum, the premiums per employee have stayed static at around £253. What is interesting is that more schemes are not moving to increased multiples of lump-sum benefits, as these are more easily understood by employees and can have tax advantages.
The market is growing by employee numbers and so perhaps defined benefit pension scheme de-risking will assist in changing the dynamic of what has been a declining market in recent years.
At £518m, the group income protection market grew by around £610,000 or 0.1%, but in the same period a further 43,705 employees were covered (albeit having reduced by 271 schemes).
If we reflect back on the period 2008-2011, we have lost £131m of premium since the market height in 2008, while covering an extra 78,655 employees.
On a positive note, the increase in focus and resourcing of insurer claims management and rise of vocational rehabilitation teams have reduced claims’ experience and therefore premiums.
Even the most optimistic pundits cannot attribute the market premium reductions and increase in employees solely to this but, where they are engaged, some great work is being done by the claims teams. Investment returns have significantly diminished on the assets/reserves that back group IP. So, alongside ageing, they have not obviously been reflected in any form of price strengthening.
With increases throughout 2007-11, is group critical illness the star in the group market portfolio? The market premium of £55m in 2011 is still only one-tenth of the group IP market and one-twentieth of the combined lump sum and death in service benefit markets but, since 2007, it has grown 48% by premium (9% in the 2010-11 period) and 23% by lives.
This is in alignment with the growth in flexible benefit schemes – 57.7% of all group critical illness premiums are within flexible benefit arrangements, which clearly highlights popularity with employees. Albeit they can be voluntary-only schemes but are advisers and employers missing an opportunity by not promoting this popular employee benefit?
The need for cover, if not the cover itself, is easily understood as everyone knows someone who has had a cancer, heart attack or stroke. It is also of benefit to single employees who may not value death benefits and with a 1x salary scheme starting at 0.25% of salary costs (less corporation tax), low sum assured benefits and high visibility make critical illness appealing at every level.