Group protection is under significant price pressure. Paul Avis explains why and offers a few suggestions to support clients who may be shocked by the cost.
There are two kinds of surprises – nice ones and unpleasant shocks. In the case of group risk benefits, it is incumbent on us, as providers, to support our clients with the fullest information possible.
That way the HR managers, the compensation and benefits teams and, ultimately, the finance directors of our corporate clients do not receive any of those shocks. When group risk rates increase, if it is not planned and well communicated, it will not be budgeted for, so the client suffers the pain of having to consider cuts elsewhere.
So, it seems clear that we have to start getting the market ready for possible increases.
The right language
The initial challenge is one of language. After many years of talking about price strengthening, rates hardening and the end of a soft market, we now need to talk about establishing normalised group insurance pricing and sustainable, appropriate pricing.
The period of low growth, low recruitment and, dare we say, even the possibility of a triple recession means that we are living in unprecedented times.
At a simplistic level, there are trends that affect group lump sum and death in service pensions benefits (DISP).
The UK has sadly experienced more suicides (especially in the 30 to 44-year-old male bracket), with a significant increase from 11.1 to 11.8 suicides per 100K population between 2010 and 2011. Over the same period increased alcohol consumption has led to an increase in alcohol-related deaths too – by 1.4% in men and 1.8% in women.
We have seen a clear increase in both suicide and alcohol-related death in the schemes we insure. Group income protection (group IP) schemes are being affected too; with some employers under expense (and even headcount) scrutiny, retention and work reintegration programmes are often under pressure.
But is this anecdotal evidence enough to satisfy employers who have enjoyed a period of low rates and are now nconfronted by higher ones? It could be argued not.
So what other factors mean that we must now achieve a sustainable pricing approach? Clearly aging is an area where there are big implications for the cost of group risk cover.
At Canada Life we cover 2.7m employees and almost 21,000 employers, so we have undertaken detailed, regular reviews of trends in our client base and throughout the economic downturn we have seen the workforce age.
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