By Paul Avis, Marketing Director, Canada Life Group Insurance
Well, not entirely. The fact remains that we still have too few customers buying our products. Excluding smaller businesses of 0-4 employees – most insurers will start cover from five employees – the ONS suggests there are 570,000 businesses in the UK that insurers could be targeting . Unfortunately, only a tiny proportion of these are being successfully reached.
There are only 43,471 registered group life policies in the market, representing less than 8% of potential customers. Take into account group life is the core benefit an organisation is likely to buy, and suddenly the numbers don’t look so good. The picture is even worse for group income protection (17,168 or 3%) and critical illness (3,311 or 0.6%) policies .
The market potential for insurers like us who cover more than two employees is even greater, making the market penetration percentages smaller and even more embarrassing.
Understanding why more organisations are not buying our products is a key industry challenge. While the total number of schemes has risen by 1,675 in the past year, with less than 73,000 schemes in the market we clearly still have some work to do.
Perhaps the most surprising aspect is the lack of take-up of group income protection policies. The number of policies has been declining every year since 2006, so although the reversal in this trend in 2016 is very welcome, an increase of 57 policies is not much to write home about . This is particularly true given the alternative when faced with a long-term illness or injury and unable to work – depending on State benefit provision – is becoming increasingly unviable. The amount given to Employment and Support
Allowance applicants (who are unable to work but are capable of some work related activity) has recently been cut from £5,312 to £3,801 per year . With most families presumably struggling to live on less than £4,000 a year, it is alarming more employers have not recognised the importance of this benefit.
Excepted group life schemes are another area of concern. The recent reduction of the Lifetime Allowance (LTA) to £1m has led to an increase in policy numbers, up from 2,307 in 2012 to 6,239 in 2016 . With excepted schemes enabling employers to provide lump sum benefits that do not count towards the Lifetime Allowance, this increase suggests employers and advisers have responded well to regulatory changes.
It is the number of people covered by excepted group life schemes that is more worrying. In 2012 there were 344,889 people covered and in 2016, 644,492 . This increase of almost 300,000 people could represent a large proportion of the number thought to be affected by the LTA reduction, estimated to be more than 450,000 . What a great industry achievement that would be! But it is likely there are other factors at play. If recent trends persist and the number of employees covered by excepted schemes continues to rise, it will be clear that the LTA is not the sole driver of new cases.
Excepted schemes certainly have their place, but are not for everyone and should only be arranged following the right advice. If growth in this market continues, it is only a matter of time until the impact on tax revenue leads to an increased scrutiny on this benefit, and the advice given (or not given) will come under the spotlight.
Product appropriateness must be considered. With the estimated average UK pension pot at around £50,000 then, for most, a registered scheme, however generous the death benefits are, will rarely lead to an employee exceeding £1m on death.
If registered schemes are being transferred to excepted schemes then both periodic and entry charges exist in the excepted regime and these could lead to trustee tax charges, especially in the first year.
There is a clear need for advice in this specialist area, including discussions with taxation and legal specialists. Recent changes mean that excepted salary sacrifice schemes no longer benefit from the advantages offered by registered schemes, which may lead to a reversal for some larger employers.
Recent growth in the group risk market – particularly the number of lives covered – is clearly something to be proud of. But if we are to progress as an industry, we must address the shortfall in the number of employers with group risk policies. The numbers show there is vast potential. We must tap into this and, when we do, provide correct and well considered advice.
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