The impact on morbidity products will increase in light of an ageing population, says Paul Casey
The ageing of the UK's population is well noted, but let us look at some statistics.
l Life expectancy at birth will rise from 74.9 to 78.5 for males and from 79.7 to 82.7 for females by the year 2020-21, and by 2008 the population of pensionable age is anticipated to exceed the number of children (Office for National Statistics [ONS] Population Trends, 1999).
l Between 1975 and 1995 the proportion of 16 to 44-year-olds with a long-standing illness rose from 16% to 23%, and from 34% to 41% among 45 to 65-year-olds (ONS, Living in Britain, 1999).
According to income protection specialist UNUM, evidence to date suggests an older age profile is associated with higher levels of long-term absence. Add to this a reduction in or tightening of access to State benefits, and the scene is set. Like most changes facing the industry, these trends hold opportunities and threats ' the biggest impact on products covering morbidity risks. For these products many providers offer terms for employees working beyond the normal retirement date (NRD), but as no free cover is available, each needs to be fully underwritten.
These individuals represent a small part of any portfolio, but are often senior citizens with high benefits who choose to stay beyond NRD. Although this profile would change, offering cover to a bigger group has inherent issues.
With the increase in morbidity at older ages these risks are not attractive, with the potential for an adverse impact on claims experience. These represent a small proportion of insured individuals and as little reliable data exists, increased cost for employers could prevent them taking out the cover at all.
Data, or lack of it, is key. Insurers use data as a basis for pricing future business. With cover extended to a larger group of 'post-retirement' employees who need to work, insurers may be more comfortable in offering a level of free cover as they will have more reliable data with which to work. This can only happen over time, so in the short term underwriting expertise and, particularly for income protection (IP), early claims management and an increased focus on rehabilitation, will be key for providers.
There is also the opportunity for other products to enter the market. We could see a wider use of both continuation options, where the employee can effect an individual policy within certain benefit and duration parameters and in group policies that automatically convert, for example from group IP to group long term care may also become popular. BUPA offers this on its individual contract, but only for existing claimants. The increased use of budget plans, with short-term claim payment periods and ' or reduced benefit levels, is another option.
In discussing the ageing population and employee benefits we cannot ignore the potential impact of the EC Employment and Race Directives. The directives provide a common framework of protection against unfair discrimination across Europe and, in addition to introducing or amending legislation to outlaw discrimination in employment and training on grounds of sexual orientation, race and religion, will include disability and age discrimination. Age discrimination legislation could apply to pay and non-pay benefits based wholly or partly on age, but occupational pension schemes are likely to be exempt. The consultation period has just ended, and this is most definitely one to watch.
