We all know that group risk employee benefits fall into three categories - life protection, income p...
We all know that group risk employee benefits fall into three categories - life protection, income protection and critical illness protection. As such, these products are pretty straightforward contracts - a cheque when an employee dies, an income when they are unable to work and another cheque if they contract a critical illness.
It could be argued that the simplistic structure of these products is what makes them most appealing and that it is price alone that allows purchasers to choose between different contracts. Indeed, aside from market pressures, there are strong forces at work to make core protection elements more generic. These include:
l Office of Fair Trading (OFT) recommendations.
l The 'approval' element of life contracts that are linked to pension schemes.
l ABI guidelines for income protection and definitions for critical illness.
Insurers have consequently sought to differentiate themselves from one another by how they do things rather than what they do. By breaking down an insurance product into its constituent parts, differentiation can be achieved, for example through less stringent underwriting, more efficient and customer-friendly administration or quicker turnaround times. Although this can be effective, is it product development at its best?
To really get to grips and enable effective product development within the risk industry, we need to consider what is happening in our market and how we can embrace the trends to the benefit of both intermediary and end purchaser.
Despite the increasing trend towards flexible and bespoke employee benefits, many employers with an established benefits package view group risk protection products, especially group life and income protection, as core benefits. When that package comes to be flexed it is then that we can begin to see benefits and levels of benefits being purchased according to employee demographics, needs, wants and priorities.
According to the Office for National Statistics (ONS), in 1998 there were around 32.5 million people of working age with some of those either unemployed, self-employed or housepersons. You could estimate, therefore, that around 26.9 million people are employed in the more traditional sense (see Table 1 above for the penetration of group risk products within that segment).
While you could take a pessimistic view of these figures, the optimistic view would stress the scope for growth. A way to encourage that growth must be to develop and communicate products that meet the demands of an ever-changing working and living environment.
There are three main external drivers of change within our working and living environment that should be taken into account when developing risk products:
l Onus of responsibility.
l Employment patterns.
l Purchasing motives.
Onus of responsibility
The gradual shift in responsibility for welfare provision from the State to employers and individuals is underpinned by growing competitiveness, obliging businesses - and successive UK governments - to drive down costs.
This shift is facilitated by a greater awareness and sophistication among consumers (including consumers of employer-paid or facilitated benefits) and enhanced through a widening availability of information, primarily through technology.
The logical consequence of this shift must be growth within the risk protection market. This growth, albeit gradual at present, is surely inevitable given the overwhelming pressure on any government to contain taxation. There is widespread awareness that significant changes are taking place in the nature of employment, impacting on the demand for employee benefits and, most importantly, how and by whom they are provided.
The workforce as a whole is changing in profile. By 2006 it is predicted that:
l Working women will account for approximately 45% of the working population.
l The number of people aged between 35-65 will grow by 2.3 million while the number under 35 will decrease by 1.1 million.
(Source: Labour Market Trends HMSO, 1997)
It is also predicted that by 2010 the majority of the workforce will no longer be in traditional full-time, permanent employment. When considering our product development responses, we must also question what sort of entities people will be working for, as well as how they will be working.
Purchasing motives
You cannot fail to recognise the growth in importance of human resource (HR) management within organisations when you look at the way many of the larger intermediaries are now structured and positioned as 'human resources consultancies'. Increasingly, it is the HR manager that is taking over from the pensions manager and finance director as the main influencer and/or decision-maker involved in selecting employee benefits providers and is therefore the individual to whom market benefits provision must be marketed.
Instead of being primarily concerned with staff benefits arrangements, the HR professional requires assistance in attracting, retaining and developing the right people for their organisation. This reflects the growing importance of the human element in an economy that now survives on the efficiency and effectiveness of its services.
We also know that, due largely to the changes already outlined, what employees want from their employer has changed. Research conducted by Swiss Life and the Fabian Society (1998) indicated that of those surveyed, most employees (86%) stated that they would like a choice about the range of benefits provided.
However, half claim they are rarely or never consulted on their benefits package. Flex and voluntary benefits provision goes some way to address this, but there is an opportunity for IFAs and employers to work together to offer benefits that employees really want.
What could this mean for insurers in terms of product development? The HR professional is looking for ways to manage the difficult circumstances surrounding bereavement and ill health. They are also looking for mechanisms that have a positive effect on the bottom line - returning employees to work, reducing lost time through sickness, absence or family crisis, and reducing the drain on the company pension through early retirement due to ill health.
And what do employees want? Do they just want life cover or do they want the security and comfort that any debt will be paid off and that loved ones will be protected from some of the effects of their death? Do they want income protection or protection from the poverty of State welfare and the ability to maintain choice, dignity and independence in the event of long-term ill health? Do they want critical illness protection or a support system to help them through a potentially terrifying situation?
Insurers must begin to focus on these questions and respond by enhancing the products.
They must offer more than a cheque. They must strive to meet the business and emotional needs that envelop the consumption of their products - death, disability and life-threatening illness. Potential responses should include the addition of helplines, healthcare intervention and support systems.
This, coupled with employers who are beginning use their communications channels to drive home the value of the package, is a potent combination. Intermediaries that help the HR department to gain full effect, not only through internal communications to employees, but also by choosing those insurance providers that have geared themselves to provide more than a cheque, are tapping into a way of expanding this market.
Nicola Smith is employee benefits marketing consultant at Swiss Life (UK)
