If you talked to any of the key players in the corporate protection market and asked them what they thought was the key to future success, I would like to think they would say: "Growing the size of the market and not just growing our market share." This feeling that there is potential for extra sales is backed by the growing number of life offices looking at alternative product types as well as maximising their distribution techniques.
Currently 65% of the working population has some form of life cover, just 15% has private medical insurance, 11% has income protection and only 5% has critical illness cover.
It is clear that vast under-penetration exists.
If you look specifically at the insured income protection market, you see that those benefiting from cover fall into two categories:
l Employees of firms offering employer-funded income protection plans.
l Individuals who have felt the need to cover themselves or, more likely, have had the merits of income protection sold to them by an intermediary.
Market split
The market is split roughly half and half between these two categories.
Research among IFAs shows that 90% of sales occur because the product is recommended to clients.
In only 10% of sales does the client approach them and specifically ask for the product. This is hardly surprising, perhaps, when research among the public consistently shows that many consumers are not fully aware of the products on offer, the risks they face, or the declining help from the State.
All this points towards the development of benefits sold on a voluntary group basis.
Individual choice
The advantages of voluntary group schemes are as follows:
l The employee is offered a menu of covers to choose from and so selects protection to suit their particular lifestyle. For example, the young single executive with no dependants may be more attracted to a critical illness policy. This situation could change if they were to marry and have children, when life cover would play a more significant role. Not just the type, but also the amount of cover can be varied to suit individual needs.
l Premiums are more affordable than those an employee would normally be able to obtain from other sources. As lifestyles become more hectic, time is saved if cover can be arranged at work rather than having an adviser visit in the evening. Premiums can also conveniently be deducted from the employee's pay by the employer.
l The employer also profits when a scheme is in place which will help their staff in times of need. This helps portray the employer as benevolent or perhaps as 'an employer of choice'. The employer does need to buy into the process and will definitely need to help with marketing the products to their staff, but the outlay will be minimal compared with the cost if the employer funded the cover.
If the worst does happen, the employer is also set to benefit from their employees' cover. Policies with rehabilitation built
in will help to expedite recovery, if possible, and an employee's motivation may be greater since the benefits received pay for their care. The employer may be able to make real savings in training and recruitment costs, if the incapacitated staff member is able to return quickly.
Early days
When the concept of voluntary group schemes first came to light, many providers simply amended their existing group arrangements and marketed products direct to an employer's workforce.
Under these arrangements the premiums paid by the employees for their cover are not significantly lower than those which will be achievable if the employee sought cover outside of work. One of the key advantages of voluntary group schemes was missing.
Policies have progressed from these initial schemes, which were often arranged on an ad hoc basis, to much more defined arrangements, which are more easily marketable to employees and offer them cost savings as well.
Typical voluntary group products include life assurance, accident cover, critical illness cover and income protection. But insurers are now looking further by providing top-up options. With such schemes the employer will fund a core benefit and provide their staff with the option to top up their benefits out of their own pocket.
Other recent developments include recovery cash and accident cash plans which are simple to understand and administrate. Recovery cash is a simplified critical illness contract which provides cover for the whole family and does not require a medical.
With all of the above products full marketing support is provided to help the IFA sell the product on to the company and the company sell the product on to the staff. This support includes literature and contact letters which set out the need and explains how to apply.
Economies of scale
There are real savings to be enjoyed from a voluntary arrangement. We can use the example of the Universities and Colleges Personal Income Protection Plan, which we provide in conjunction with leading healthcare IFA, Burke Ford. Under this arrangement, the plan is marketed by Burke Ford to further education establishments who then offer the cover to their staff on a voluntary basis. For example, a lecturer who is 35 years old next birthday, a non-smoker with a salary of £25,000 and £12,500 benefit ending at age 60, would pay £15.78 each month with a standard plan, whereas their premium would drop to £10.25 with the Burke Ford scheme.
How the voluntary scheme works:
l The employer: For a voluntary arrangement to be successful the employer needs to pay attention to marketing plans to their staff as well as helping to facilitate the administration of the scheme. Examples of this would be exhibitions, posters, seminars, enrolment days, canteen displays, literature attached to pay cheques, an article circulated around the company and so on.
l The IFA: As with many group employee protection plans the intermediary provides an essential part of the sales process. They help the client with the initial search for a provider and continue to provide service throughout the length of the arrangement.
While the relationship will last beyond the initial search it is at this time that the IFA will be invaluable to their client. The better the business case that the IFA can present to prospective insurers, the more likely the insurer will provide full marketing support and discounted rates. Information which helps in the business case includes experience of the industry in question and a history of success of other voluntary products marketed to the same group of employees. For example, if the client were searching for an income protection arrangement and could show significant uptake in a previously arranged voluntary PMI arrangement, then discounted rates of the voluntary income protection may be offered.
The support the employer will give to the scheme is also of great importance. The extent of their ongoing involvement is up to the individual circumstances of the case. In the complicated, multi-producted, voluntary arrangements the IFA involvement may well be considerable.
l The insurer: The insurer will normally underwrite the scheme as a set of individual policies, or an 'affinity group'. The common denominator between each of the policies is the employer. In many cases the insurers will produce sales literature and approach letters for the IFA and client, even 'badging' the product as required.
Target companies
The benefits of voluntary group schemes can be achieved by many companies. However, the companies where this sort of cover may be more suitable than employer funded arrangements can be identified and targeted.
Providers will have a general understanding of take-up rates for their insurance when it is offered on a voluntary basis. By take-up rate, we mean
the number of employees per hundred who choose to take up the offer of cover. This rate will obviously vary between product and industry type.
The size of the firm will be important. Clearly there needs to be a sufficient pool of staff at which to pitch the product. Once this 'critical point' has been reached, the insurer will welcome the opportunity to try to grow its chosen market and be more than willing to assist with marketing.
Also significant in voluntary income protection arrangement is the firm's type of business and the occupations of their staff. Pre-approved rates will be supplied for each occupational class
of employee who may be applying
for cover. Clearly this may lead to a situation where two employees of the same age, looking for identical cover, may well be charged a different premium since one person's occupation could present a greater risk to the insurer.
Obviously in this situation, the employer would need to take steps to ensure confidentiality is maintained.
Another option would be a voluntary blue collar worker plan. Here the occupational rating system is removed, so parity between job types would be achieved.
Anti-selection
One of the greatest problems with voluntary arrangements is that those with a higher than average likelihood of claiming are those who have the strongest motivation to purchase cover. To combat this, many schemes have
pre-existing condition exclusions and guaranteed issue to control selection and ensure maximum take-up rates.
Voluntary group products provide the employer with a significant advantage in the current employment market. Take-up rates indicate that staff do truly value the option for affordable, easily administrated cover arranged through work.
Two issues are prevalent in human resources today. Firstly, the need to attract and keep quality staff to remain competitive in today's market. Secondly, the need to obtain value for money and operate efficiently.
Voluntary group products address both these needs, allowing the employer to extend the benefits offered at no significant extra cost. Choice does truly benefit all concerned.
David Royle is marketing director at UNUM
