The group life market seems to be one where not a lot happens - it is a well-established, cheap and ...
The group life market seems to be one where not a lot happens - it is a well-established, cheap and simple product that has seen little change in recent years.
According to ERC Frankona, premium income reached £624m in 1999, rising from almost £596m in 1998 - a small increase when the impact of inflation is considered. Almost 47,500 schemes are in place covering just over six million lives. But while the group life assurance market has been relatively static for a long time, the market may be set for a number of changes.
Stakeholder provides massive opportunities for providers and IFAs in the group risk market, according to John Ritchie, marketing manager, employee benefits, at Swiss Life.
He says: "The big event on the horizon for insurers is the development of group life along with other risk benefits around the Stakeholder product. Stakeholder will allow us to broaden the market for group risk. At present there are not enough margins on the product and the market will have to think about the need for surrounding insurance benefits."
Mike Warr, director of corporate business at Royal & SunAlliance Life, agrees and adds that the introduction of Stakeholder might increase intermediary interest in group risk as a whole.
"Looking forward, the corporate market will become much more attractive to IFAs and group life is a good way of establishing a relationship with a company," he says.
"There may not be a tremendous commission on the product, but there is little underwriting, the administration is simple and it is cost-effective. Overall, the merits of the product are undersold. We are already seeing levels of activity rising with IFAs taking a renewed interest in the market."
However, Peter Fenner, market analyst at ERC Frankona, says that Stakeholder-prompted market growth will ultimately be dependent on Government legislation that is yet to be laid down. He says: "At the moment, the proposal is that life cover can be effected within Stakeholder plans but will be limited to the amount of cover purchased by 10% of the total contributions. This is actually much lower than is currently allowed. If this becomes law then many Stakeholder providers may not want to offer life cover under their plans, which may mean an opportunity arises for IFAs to sell group schemes alongside Stakeholder plans."
Swiss Life is currently looking to develop its role in the Stakeholder arena, according to Ritchie, and it is presently working with other financial services companies to syndicate its services under its brand.
Commoditised products
As with individual life cover, one of the key problems with group life is that it has rapidly become a commoditised product. Employers want their employees' families to receive a lump sum on death and the company that can provide the right sum assured at the lowest price will win the sale.
Fenner says: "The group life assurance market is exceptionally competitive and it is difficult to differentiate between products."
Products do not have the 'bells and whistles' or value-added benefits sold on many individual protection products. Most policies simply comprise of a death benefit, spouse and child's pension and an accidental death benefit. This is due not only to the need to be competitive, but because the way in which schemes are written, according to Ritchie.
"As schemes are usually attached to the pension scheme, they need to stay within the boundaries of the rules set by the pensions office at the Inland Revenue, for example being limited to no more than four times salary and two-thirds for widow's and childrens' benefits," he says.
Unapproved cover
Where employers want to offer cover in excess of the Revenue limits, anything over and above these limits is insured as 'unapproved' cover that is not subject to the same level of tax relief. Around half of the companies featured in the survey offer this type of cover. But Warr says that while the market is hugely competitive, products have to be about more than just price.
He says: "Our strategy is about relationships. IFAs need a company that is reliable. To just focus on price carries a downside and you get what you pay for."
It is unsurprising then that in such a market, prices are low and exclusions are few and far between. In case 1, for the company seeking four times salary for all staff, cover could be arranged in most cases for less than 0.25% of the payroll. AIG Life offers the lowest premium at £12,212, or 0.18% of the payroll.
In case 2, the firm is looking for two times salary for all staff. Premiums are more diverse, ranging from 0.2% of payroll, just £704 with AIG Life, to 0.55% at just under £2,000 from Royal & SunAlliance. In the final case study, the company wanting three times salary for all staff, premiums start at 0.22% or £9,442, with AIG Life compared with 0.55% from Scottish Amicable.
In the bid to compete and cause minimum fuss with clients, free cover limits are rising. While they do vary, insurers such as Royal and SunAlliance and Swiss Life are offering up to £1m in some cases. As the price war continues, technological advances will also introduce changes to the market with businesses increasingly expecting fast, seamless transactions.
Warr says: "Businesses are increasingly expecting the utilisation of technology. They need to be as efficient as possible and expect this as it is what they are doing in their own markets."
For example, they will want to deal and communicate electronically with the insurer and will expect to access policy literature and application forms through a website without having to rely on the post.
Improved promotion
While penetration may be higher than other group risk products, Ken Richart, group risk manager at Swiss Re, says that the market is still too small and further growth will be dependent on better promotion. This is currently be pioneered through GRID (group risk insurance development), an organisation set on raising awareness of the group risk market.
Richart says: "So far we have not been promoting group risk properly. Employers have other priorities than employee benefits and they think they do not need them. We need to get the merits of employee benefits across to employers."
Rachel Williams is senior staff writer
