Got it covered

If you are an adviser looking after businesses, especially small companies, you will know that it can sometimes feel like a lot of weight keeps falling on their shoulders. Issues such as Income Tax, VAT, employment directives, health and safety and discrimination can be a great burden to small businesses. The list seems endless.

The last thing firms need to be told is that because their company is small, they will be unable to benefit from the economies of scale that their bigger competitors have so their costs for insurance and the lengths to which they have to go to get it will be higher and longer. However, this is where umbrella schemes can provide an effective solution.

Bearing the burden

Sadly, the prospect is that forthcoming issues for small businesses will be a heavier burden, not lighter. There will be implications from all the recent announcements about proposed changes to pensions and there is also European Commission-directed legislation on the way from 2004 to 2006 in areas of discrimination such as age, sexual orientation, disability and religious belief. Until now, of course, small companies of fewer than five employees have been exempt from the provisions of the Disability Discrimination Act 1998. But not with the new Act.

On your own, it is difficult to get what you need at a price that seems reasonable and, more to the point, affordable. Couple that with the fact that even for buildings insurance the insurance company seems to want to know your inside leg measurement, the prospect of getting cover, however necessary it may be, is not an attractive one. The benefit is hardly worth the effort, let alone the cost.

Trying to get together with other companies of the same size is not the easiest thing to do, although organisations such as the local chamber of commerce may be a reasonable starting point. This is where advisers can step in and suggest some sort of pooling among your clients might help to achieve some of the economies of scale. In the end, it comes down to the basic principle of insurance ' the burden, or misfortune, of the few falls on the better fortune of the many. There is definitely some safety in numbers and bigger is generally better when it comes to buying insurance.

Clubbing together

So what are the advantages of clubbing clients together? If you can get your clients together with companies who operate in the same or similar fields ' and you should know what their business is ' you will know many offer the same or similar benefits to their employees. They have to, in order to stay competitive with each other. The homogeneity of risk profile means an insurer can make broader assumptions about the risks to be covered than they can for one small risk on its own. This should mean a more generous level of rating could be applied, hopefully resulting in lower premiums for all in the grouping, and a higher quality of service from you to your clients.

There are a number of other areas where this coming together may deliver better benefits than one small business trying to go it alone. The most obvious is free cover ' that is, the amount of benefit that can be insured on any individual without them having to provide medical evidence. Insurance companies know how much trouble and inconvenience is caused by repeated requests for this, so they try to keep them to a minimum. Any suggestion that reduces these requirements is surely to be welcomed. For a business of less than five employees, it may mean the difference between having some level of cover on employees or none.

Simplicity of administration is another. On small schemes, movements of any kind, such as a new employee, an employee leaving or a change in salary, have to be recorded and the cost adjusted at the time. This results either in requests for money, requiring a cheque to be drawn, or a refund being made, which means a trip to the bank to pay it in, always assuming that someone has remembered to tell the insurer in among all the other things that have to be done.

What all this means is that there are real, tangible advantages to both employers and employees if some kind of over-arching arrangement can be assembled. The beauty of it should be that it uses well-established principles in all aspects of group risk business, underwriting, admin-istration, claims, accounting and documentation, so should also be of real interest and benefit to insurers.

Let us to look at the framework of umbrella schemes. They come in two parts: the standard part that applies to all clients plus some variable items, which allow the deal to be tailored to suit particular circumstances.

The standard parts will include elements such as:

• The rate guarantee, which allows an employer to predict costs for a future period.

• No minimum or maximum limit to the number of lives that can be covered.

• New employers wanting to join can do so at any time.

• All employees are covered from day one.

• New employees are covered straight away.

• Cover continues while an employee is off sick.

• Employees only need to be actively at work for one day to be covered.

• Only one set of approval documents is required for the scheme.

• There are no policy fees.

• Basic cover is in place while evidence is assembled for cover in excess of the free cover limit.

• Unapproved cover is available where necessary.

Then there are the variables:

• Rate guarantee period.

• Benefits levels in all lines, including group life and income protection (IP) cover.

• Definition of salary to be used for the benefits.

• Within IP, choices such as the length of deferred period, the definition of incapacity and the escalation rate of benefit in payment.

All this is aimed at allowing advisers to give their small business clients added value and improved benefits to offer their employees. There are also numerous administrative and sales advantages for the adviser, too. The flexibility should not be a bar to ease of understanding for the client. Indeed, it should put you in the position of being able to cover more, not fewer employees. The arrangement can cover new clients and existing ones and means the adviser is in the unique situation of being able to put a client on risk while sitting with them, or even over the telephone.

The kudos an employer will receive when it is announced to the workforce a benefit is now in place, at no cost to them, which was not previously there, should make for satisfied clients.

Bob Bowskill is underwriting and affinities director at Sun Life Financial of Canada