Getting a foot in the door

Many advisers have considered getting involved in group protection benefits but have held back, either because they did not have the experience or felt there were too few areas where they could add value. But it is now time to revise this decision.

The traditional employee benefits package had three elements: pension (defined benefit or defined contribution); group life protection and spouse's death in service pension; and income protection (IP).

In this set up, the pension scheme was king. IFAs became involved in the risk elements to retain the client and demonstrated their worth by shaving the odd percentage point off group protection, for example, life and IP costs. The pension scheme generated the big commission.

Protection benefits received little attention during the rate guarantee period and were rebroked every two years to check the rate remained competitive in the market. Those advisers competing for that client's business attempted to demonstrate their worth by rebroking the risk elements to obtain a lower cost.

The past few years, however, have seen significant changes in the market in which group protection benefits operate and, in addition to achieving best price for their clients, advisers are also providing advice on a number of key areas of change.

One of the main changes is the move from defined benefit schemes to defined contribution schemes. We know how successive governments have brought about this position, and it is not our intention to apportion blame, but it is a simple fact there is a crisis which is causing many employers to cease defined benefit schemes rather than threaten the financial status of their company.

Company considerations

This means that employers need to think about what they want and how to go about achieving their aim. Considerations include:

• The need to discuss how to make these changes and how to raise the subject with staff.

• Whether they should consider introducing other benefits at the same time to either help negotiation, or 'sweeten the pill' ' for example, employee assistance programmes, group critical illness, or orphan death-in-service benefits for single parents.

• The need to consider changing to insured arrangements from self-insurance. For example, with a defined benefit fund in deficit and closed, a spouse's death-in-service pension of 50% prospective pension is not feasible. Ill-health early retirement (IHER) is also better funded and managed by IP, rather than a defined benefit fund and an IHER committee.

Stakeholder pensions have introduced a '1% world' and front-end commission is now under threat. CP121 is likely to end with greater clarity of selling costs. The outcome for protection elements of employee benefits packages is that there will be a greater move towards fees. This will make hardly any difference to medium or large schemes but for smaller ones there may be no advice, but cheaper costs via the internet, advice at a cost on a product by product basis, or one fee which pays for advice over a range of products and needs.

Successive governments have been concerned that demographic trends will mean they have to consider ways to reduce the burden on tomorrow's taxpayers. As new rules are announced that are aimed at reducing State benefits ' or the number of people to whom they are paid ' the insurance industry, along with employers and employees, will need to decide how to replace them.

We have already heard how the Government wishes to encourage disabled employees to return to work where possible. It has introduced the Disability Discrimination Act 1995 (DDA) which requires employers to make 'reasonable' changes to the workplace to enable disabled employees to continue to work.

A few advisers have recognised most employers do not have the resources in-house to meet the DDA and other healthcare needs and are putting together packages to help. These packages pull together insurance products and service providers to give the employer and employees access to experts in these fields, which, in turn, takes the pressure off over-burdened HR departments.

Joining in

The time is right for advisers considering entry into the employee benefits market to take the plunge. Budgets within most companies are now under scrutiny and there is a need to demonstrate value for money. Although a good pension scheme is the jewel in an employee benefits' crown, there is recognition that group protection insurance and services to the employer can be more relevant in that they deal with issues while in service.

The key to success is finding clients who need advice. With employee benefits like individual business, the need varies by size (or value) and status.

There cannot be many large companies at present that are not worried about the impact Funding Requirement Standard 17 (FRS17) will have on their pension scheme, and hence the value of their business. They will already have an actuary and an accountant for their pension scheme needs. One of these may also advise on group protection benefits. There will, however, be issues on the following topics that may, or may not, have been covered, such as:

• Self-insurance ' unless a final salary fund has a healthy surplus, they will not wish a poor claims year to increase a fund deficit and therefore impact upon their business.

• Since 11 September all schemes must consider catastrophe risks and event limits that may limit an insurer's exposure/or schemes with a high number of staff at one site.

• Ill-health early retirement policy and reserving basis.

• Scheme design ' has the scheme kept pace with changing social trends, such as co-habitation rather than marriage, single parent families and same sex partners? Employees in any of these groups may be dis-satisfied if excluded from the scheme's core benefits.

Small employers are unlikely to have access to expertise in areas such as absence management or occupational health. They will appreciate that the early notification of potential claims under income protection schemes can contribute to an absence management policy, while helping to meet the needs of the DDA by advising on possible workplace adjustments.

The smaller employer also needs to understand how a competitive employee benefits package can help recruit and retain staff, the tax reliefs available, and the cost efficiency of premiums paid towards employee benefits, rather than as salary.

Medium-sized employers may have the same issues as small or large employers and like them these will also includes staff perception of the package, communication of the value of that package and how to meet the requirements of constantly changing legislation.

The right approach

Many advisers will already have business relationships with corporate clients and merely have to raise these issues in discussion. If, however, they have to seek suitable clients, the initial approach should consider the issues that are likely to concern the employer most. These will include the those mentioned already, but there are other areas that need careful consideration, such as:

• A review of the areas that are not providing the required benefit or effect for employer or employee, for example, own-occupation income protection to normal retirement date.

• An introduction of healthcare services.

• Employee assistance programmes (EAPs).

• Critical illness protection.

• Private medical insurance.

• Flexible benefits.

• Voluntary schemes (only for large employers).

Increasingly more insurers are now offering training on the group protection market and advice on how to gear up for it. Visit their websites, or make enquiries via your local sales consultant.

There has never been a better time for advisers to enter the employee benefits field. Traditional packages are being reviewed or enhanced by a new generation of products and services, and employers need help to understand their choices.

Pension schemes are currently in the headlines and the subject of employee benefits is to the fore. Employers will be seeking to reassure their staff that although some difficult decisions have to be made, it is a good time to bring their employee benefits package up to date.

Steve Welsh is distribution development manager (employee benefits) at Swiss Life (UK)