By Paul Avis, Marketing Director at Canada Life Group Insurance
Modernising and updating GIP scheme design
In the Group Income Protection (GIP) market, there are two scheme designs that need to be refreshed – integrated and Net Pay schemes. These schemes were initially introduced in the 1990s when State benefits were greater, tax-free and based on an ‘own occupation’ definition of disability. However, in the 21st Century, these scheme designs have become very costly. The State’s contribution has lessened and the benefits are now taxable and harder to qualify for.
Today, schemes with Long Term Incapacity Benefit as a deductible exist, but this was replaced in 2007 by the Employment and Support Allowance (ESA) for those considered unfit for work but capable of work-related activity (WRAC). The link with State benefits must be removed once and for all if these schemes are to evolve.
The opportunity presented by offering a more modern limited pay period or budget GIP plan is massive. Although they start at roughly a quarter of a per cent of salary costs, they come with a wide variety of additional services, such as vocational rehabilitation, a second medical opinion service and other non-financial benefits.
These limited period plans are becoming more common. Several schemes have restricted eligibility, so expanding them on a clear Return on Investment (ROI) basis would be welcomed by organisations. In an ideal world they seek a standard absence management process, instead of one that provides alternative management routes at various stages for different employee populations.
Communicating the value of GIP to employers
While it is clear that certain schemes need to be updated, they also need to be communicated in a manner so employees understand the full range of benefits on offer. The UK has an ageing workforce with a never ending list of chronic complaints – many of these are serious medical conditions, such as cancer. At present, a large number of employers up and down the country are left open to risks that an ageing workforce poses. GIP can meet the demands of an ageing workforce, but it is currently being communicated ineffectively.
Insurers need to have an in-depth discussion with business leaders to demonstrate the true value of GIP, such as absence management support. The industry must ensure employers invest in a solution that fulfils their requirements.
Responding to Government welfare cuts
From April 2017, those applying for ESA and WRAC receive a lower level of State benefit, equivalent to the Jobseeker’s Allowance. In real terms, the amount of support each applicant receives has dropped from £5,312 to £3,801 per year. Therefore, now is the perfect time for employers to review all schemes with an ESA and WRAC State benefit deductible – we believe approximately 8,500 employers and 1 million employees’ benefits could be impacted.
Insurers and advisers should also step in and help employers consider GIP. Employers need to ask themselves: can anyone really live on £3,801 per year?
Nearly 250,000 people leave employment due to poor health each year, and the benefit levels are astonishingly low. There are around 2.4m people already claiming State disability benefits, which adds up to a £36bn cost to the UK’s economy each year. The
GIP market will grow if the industry can communicate the extra need for protection, especially in response to the government’s cuts.
Expanding GLA and the Death in Service Pension
GIP isn’t the only product with the potential to grow. Automatic enrolment creates the perfect storm for insurers to talk about Group Life Assurance (GLA). Whilst 1.3 million employers are eligible to buy GLA, there are only 43,471 registered schemes.
This implies that the majority of employers – 97% to be exact – do not have GLA. But this begs the question, if everyone now has access to a pension because of auto-enrolment, how will employers attract and retain the most talented people? One answer is GLA. It provides employers with an inexpensive and simple way to differentiate themselves against their industry rivals.
Finally, we should also consider the Death in Service Pension. Interest rates are low, annuitant life expectancy is on the rise and there are a high number of closed schemes. Taken altogether, it means the Death in Service Pension is going to be more expensive.
As a result of this increased expense, employers have to justify the benefit or consider others, such as additional lump sum amounts. However, there is an opportunity for employers who maintain this benefit to celebrate and communicate its exclusivity, and highlight that it adds terrific value to an employee’s survivors.
As we head into 2018, employers must stay on the front foot and communicate the importance of having protection products and support services in place to their employees.
|
