Group critical illness sales may not have seen the same success as other group products, but there are strong opportunities in the employee-paid flexible benefit market, says Paul Robertson
Group critical illness (CI) cover is poorly sold when compared to other group protection products, in particular group life and income protection. Traditionally employers have found it hard to see value in CI, reasoning that if you give someone £50,000 after they suffer a mild heart attack, then they may not return to work. However there is growth in the market, mainly coming from individual employees.
Flexible benefit packages
As a product group CI becomes most popular when employees choose it as part of a flexible benefits package. Employers aiming to motivate and retain their workforce will be looking to offer a product that has high visibility. Employees know about CI cover and appreciate the benefits of having a policy. If the employer gives access to a group scheme they will also appreciate the reduced rates.
Nicola Smith, head of communications, employee benefits at Swiss Life, says: 'We are the biggest player in the group market and we have seen steady sales but would admit there has not been a huge increase in sales of this product, it is a steady seller. I do not think advisers sell it enough though. Insurers need to push advisers on the benefits of CI. It could certainly be pushed more in the flexible benefits market, where it is already a winner. As the market grows brokers should be talking about it.'
Simon Bailey, product development manager at Scottish Equitable, believes CI sales are going well in the group market. He says: 'The reason any insurance product does not sell is that it does not meet customer needs clearly enough. Until it does then sales will be difficult to achieve. However, it is true that where it is making its mark is within flexible benefit packages and voluntary schemes. While at the group level it is generally hard to sell in at the moment, at the individual level you can really see the benefits of the policy. '
Up-to-date figures from reinsurer GE Frankona Re are still being collated but initial figures are showing steady if unspectacular growth, especially in premium revenue. The number of schemes in existence remains small, at 1,631, but this is a 14% rise on the previous year. Premium revenue figures are far healthier. 2002 saw revenue from group CI schemes at £16.15m, 48% up on 2001's £10.9m. The average scheme premium in 2002 was £9,904, up from £7,693 the previous year.
As an adviser, John Joseph of John Joseph Financial Partnership, says it is quite difficult to sell at the moment as companies are, if anything, cutting back. He says: 'If the sum insured is not too great then it may help the employee back to work and the company may want to back them. However, most of the people who have access to selling group products as a whole do not bother because they do not feel they have been trained well enough by the providers in order to sell it competently.'
There is no doubt that many companies are having a hard time in current markets, and will not want to do too much that puts up their operating costs. Many employers will have their hands full managing their employee benefits at the moment, especially those with a defined benefit pension scheme. It is in this area that Smith sees an opportunity. Firms may take on benefits to replace ones they can no longer afford.
'Some companies are looking to downscale their defined benefits pension schemes, and are looking to enhance their overall package to sweeten the pill. This works out a lot cheaper than a defined benefit package,' she says. She also believes that the product itself should change, adding: 'I think we would accept as insurers that group CI needs to move on, we need to come up with some product innovations, more benefits for the employer.'
Scottish Equitable does not take the same view. Bailey points out that when you speak to people they say that one of the great things about CI is its simplicity, and therefore when ever you talk about development of products providers shy away from CI. He says: 'It has tended to involve additional bolt-ons such as helplines guiding you through treatment. But these extras are a bit suspicious as the conditions covered by CI are generally looked after very well by the NHS, so the lines may not actually be adding any great benefit. However, there is probably scope for the helplines to focus more on rehabilitation services. Private money can certainly help in the recovery process, and again, this would be an aid in selling group CI to employers.'
There is doubt about whether a bolt-on such as a helpline actually serves as a sales tool, although they are becoming ubiquitous. CI add-ons are not a claims management tool in the same way as they are for income protection, once the claim is paid, the insurers liability in effect ends. Very little group business is written through non-IFA channels. Group benefit IFAs have very strong relationships with their clients, are well positioned, and normally keen to offer additional help.
As an adviser, Kevin Carr, senior technical adviser with LifeSearch, is not sure of how much value added services provide. 'From an employer's perspective the bolt-ons are a good thing, although I do not think that it will make a difference whether the product is bought or not. These extras serve to differentiate between products, they would not normally be a deciding factor in deciding whether to buy in the first place,' he says.
Selling a service
Smith agrees that if you put a plain CI policy to an employer they will look at the price, but if a service is attached it helps differentiate products in other ways. She also believes that the value to employers of these services should not be overlooked in terms of emotional support.
She says: 'Many employers are not equipped to deal with employees who get that sick. They have no idea how to deal with cancer patients, for example. It is too emotional and personal. These services can take some of the onus from the employers to do something to help.'
As for the year ahead, the Association of British Insurers' (ABI) revised definitions will be implemented and there are also new templates for technical guides coming out, which aim to explain CI product information more clearly. These definitions have a particular importance in the group market. Nick Kirwan, head of product development at Scottish Provident, explains: 'The ABI statement of best practice applies to group CI. The new definitions will be in force by May. Where it makes a difference for group schemes is that they tend to be written as annually renewable contracts.
So at renewal, the new def- initions will probably apply ' it is effectively a new policy every year. At the very least, advisers in that market may want to communicate those changes to clients.'
There may be an opening in the group CI market as the individual market tries to level out guaranteed rates.
Group CI is a great way of providing the same benefits with free cover, lack of individual underwriting, plus rate issues are not as acute as group schemes have been relatively insulated from the recent price changes. It is mainly because group schemes do not offer long-term guaranteed rates that there has not been the recent price increases in that the individual market has seen. However Kirwan feels it remains a concern for
employers. 'Guarantees have gone up so much that in the long term, reviewable CI premiums will rise in turn. Employers are acutely aware that they do not want to give benefits now, only to see costs rise significantly in the long term, forcing withdrawal. This may be retarding the market,' he says.
