Income protection policies make obvious sense to employers.
Not just financial sense because they limit the length of time which an organisation pays a member of staff during their absence, but also in the sense of being able to attract high calibre staff with a benefits package that demonstrates a caring approach to their welfare - whether they remain healthy or not.
For employers, having a strategy in place that enables them to care for people who fall prey to an illness is a particularly pertinent issue, given the fact employees are five times more likely to develop a serious or life-threatening illness than they are to die before retirement.
Of course, employees may be paid by their employer and are entitled to receive statutory sick pay of £50.35 for the first 28 weeks of any illness, but for those facing a long-term illness the difficulties of ill health can easily be compounded by financial worries.
Time to re-evaluate
The prospect for anyone with outgoings that are normally met by a salary becoming dependant on State incapacity benefit can be a financially bleak one. Following a medical test, claimants receiving long-term sickness benefit will receive £59.55 between weeks 29 and 52 and £66.75 for 53 weeks-plus.
The need to protect employees from the harsh realities of long-term sickness absence is well understood, but, as with many other benefits, over the years insurance products that fulfil that need have been tailored to meet employers' needs for an affordable product. Perhaps the time has come to re-evaluate the benefit of that approach for all of the participants.
Deferred payment periods ranging from 13 weeks up to 104 weeks on income protection plans give employers access to important employee benefits at attractive prices and enable them to limit their financial exposure to long-term sickness absence.
But what do deferment periods do for the insurers? I would contend that deferred payment periods not only increase the insurer's exposure to long-term liability but, worse, do little to encourage employers to take proactive action to rehabilitate staff back into the workforce at the time when it would be most effective - at the beginning of their illness. Department of Social Security statistics on the duration of incapacity indicate that someone receiving incapacity benefit for one to two years is likely to continue doing so for up to three to four years.
Helping staff to take the most positive steps to regain their health at the beginning of an illness is an approach that can benefit both your own and your clients' business at a number of levels - human and financial.
The cost of absence
In sheer financial terms, the cost of absence to business is affected by the fact that the average employee takes around eight and a half days off work sick each year, 3.7% of all working time is lost to sickness absence and the average direct cost of sickness absence is £426 per employee. However, while indirect costs remain elusively hard to calculate, it is conservatively estimated that you can double that figure. In 1998 the total direct cost of sickness absence to UK employers was more than £10bn.
Employers may also need to pay overtime and temporary staff costs and absence may lead to increased health insurance or income protection claims. Likewise, there could be litigation costs of meeting employers' liability and responsibilities under the Disability Discrimination Act and there is the possibility of re-charges from the NHS for patients injured at work
On the human side, insurers and employers need to consider the less tangible costs such as:
l Poor staff morale.
l Increased stress and absence as remaining employees take the strain, particularly when 30% of sick leave is related to stress, anxiety and depression.
l Lost management time.
l Lower productivity.
Then there are the issues that few employers can even quantify, such as:
l Increased accident rates, because employees who are stressed are less able to take care of their own and others' safety, which may in turn have a financial cost.
l More complaints and grievances due to strained relationships and lowered levels of tolerance, which require time and resources to put right, whether that happens formally or informally.
l The risk of civil liability for damages where the courts recognise workplace stress as a reasonable cause for employees to take action on grounds of negligence against an employer and where it can easily place an employer in breach of contract.
It is therefore necessary to check whether, as an organisation, your client has gone far enough to meet the requirements of the Health & Safety at Work Act to take reasonably practicable steps to protect employees from work-related stress.
If an employee appears incompetent because they are suffering from stress, they may feel obliged to resign to relieve the stress. Employment protection law may leave the employer with a financial penalty for unfair dismissal. Taking a proactive and positive approach to managing stress is just one example of absence management helping to reduce an insurer's exposure to risk from an income protection claim.
Stress is a condition staff are often reluctant to discuss with their line manager and one that is probably under-reported, because it can manifest itself as a physical ailment, which is given as the reason for absence.
The Department of Health claims stress costs employers 90 million lost working days each year, with around 180,000 cases a year reported to the Health & Safety Executive. Court rulings on recent high profile cases have underlined the employer's responsibility to manage stress in the workplace, but perhaps it is also time for insurers to consider whether it is wise to agree to price a product on a basis that effectively prevents them from having a positive influence on the outcome.
The solution
While income protection will undoubtedly continue to be an important tool in the employee welfare and benefits armoury, perhaps now is the time for insurers stop pricing their product on a basis that increases their exposure to risk and to help focus their clients on finding a positive solution to managing absence and long-term illness.
For employers, the answer to retaining staff who experience illness is not really rehabilitation, because in order to rehabilitate someone you need to know what is wrong with them in the first place. Successful rehabilitation begins with starting the support process at an early stage. The essential elements in working with employees to achieve their return to work are:
l Early and effective diagnosis of a problem - this is crucial, but can also be difficult. What an employee tells their employer is wrong may not be the full picture. Line managers may not be skilled enough to get to the bottom of an issue and it is important to use trained personnel, skilled at delving beyond the face value situation.
l Working proactively with individuals to find the solution to meet their needs.
l Co-ordinating all support mechanisms to ensure the employer arrives at the right solution, such as counselling and private medical treatment. Not every employee will need medical support. A stressed executive may not need counselling - their stress may be removed, for example, if the worry of combining work and active support of an ageing parent is solved by finding appropriate care for the elder. Practical solutions to problems can often be as effective in enabling an employee to return to the workplace as a medical solution. For example, employers should take a flexible approach that enables the employee to return to work part-time, to facilitate their return by providing transport, and so on.
l Find practical solutions to problems - whether that is early diagnosis of a medical problem, providing 24-hour childcare to assist recuperation or providing an objective but caring ear that enables an employee to seek help while retaining their credibility and dignity at work.
There is no mystique to managing absence. The key is to take a logical approach - if an employee is off work sick, they need care, help and practical advice to help them get well again.
Quite apart from the human considerations, there is undoubtedly a business imperative to working in a positive way to help employees reintegrate into the workplace. Recruitment costs if staff are lost to the business can be significant. It has been estimated that the cost of replacing a bank clerk is £5,000 and a supermarket store deputy £10,000.
All of which means that it makes sound business sense to encourage your corporate customers to establish an objective and credible process for managing absence, to diagnose and manage absence in its earliest stages and to implement creative and practical solutions which help the employee return to work.
Solutions can range from using private medical insurance to paying for private treatment if a staff member is not already covered, allowing them to return early, but on a part-time basis, or making physical adjustments to the building.
By managing absence we have been able to return employees to work on average 10% earlier than would otherwise have happened. Imagine the possibilities if benefits such as those were reflected in claims experience.
Lynda Hardy-Maskell is marketing manager at CIGNA Healthcare
