Another year of positive progress for the industry, still leaves plenty of opportunities for advisers.
The latest market data from the Swiss Re Group Watch report shows that more UK employees are covered for group life and disability cover than ever before. For advisers new to the market, or perhaps those just looking for a broader perspective, we outline the key findings from the report, together with our analysis as to the present trends and opportunities for advisers.
Group risk products now cover 12.5 million UK workers, which is an increase of 3% on the previous year. The number of policies insured increased by 2% and the premiums increased by 5% to a total of £2.2bn annually.
The most stand-out statistic from this year’s report is the large increase in employees covered under excepted group life policies. There are now 21% more employees covered at the end of 2017 than the year before, and more than twice as many as were covered in 2013. Given that the lifetime allowance has reduced from £1.8m in 2012 to £1.03m now, it’s no surprise this has resulted in such an increase as more employees are caught by the tax threshold. Although most group life policies being set up are done so on a registered basis, excepted and single relevant life policies are now also commonplace, with many schemes split into registered and accepted segments.
The number of death in service pension policies has fallen 8.8% over the year. At Ellipse, we’ve seen very few, if any, new policies being set up on this basis, with most established schemes choosing to restructure pension benefits to provide a replacement lump sum. Indeed this has been the trend for the last few years as low long term interest rates have impacted product pricing. We expect the decline to continue but at a slower rate, as most major scheme restructures have already taken place, leaving many schemes closed to new entrants.
The number of policies insured is a good indication as to the true growth rate and the success of industry efforts to encourage new employers to establish cover for their staff. There was a 5% increase in the number of policies insuring less than 10 employees, which likely reflects more interest from SMEs, perhaps in light of pensions auto-enrolment.
Overall the number of policies only increased by 1.8% to 53,318, similar growth to the number of employers covered, which is still very small considering 1.2 million UK businesses now have a workplace pension scheme. Given the popularity of the benefit amongst employees – 3rd most valued employee benefit (Ellipse research 2017) – we believe there is still a great opportunity for us to help advisers grow the market.
Group Critical Illness
Although not as commonly provided by employers as the other products, 2017 still saw an 11% increase in the number of policies, with benefits insured increasing by 8%. Group Critical Illness is popular as a voluntary benefit, with 65% of premiums from flexible benefit arrangements.
Although still a relatively small market segment, the benefit is likely to see a greater take-up as the popularity of flexible benefit programmes improve, driven in part by better and more affordable benefit technology which makes it easier for employees to engage with their benefits.
Group Income Protection
Encouragingly income protection cover has gained a higher profile in recent years, and this is reflected in the latest data. Cover is now provided to 2.4 million employees, a 5% increase from last year, while the number of policies insured has increased by 1.5%, the first such increase for 11 years.
The general trend for disability benefits to be provided for a limited term continues, albeit at a slow pace as the proportion of policies setup on this basis has increased to 20% from 14% in 2013. In our experience most new policies are set up on that basis, so this trend should continue in the future. Some cover is clearly better than none, and with premiums generally significantly less, limited term cover is an ideal option for those with a limited budget.
Much like growth in group life, the increase in the number of employers buying the product for their staff is encouraging. But there is still a significant opportunity for advisers to introduce more SMEs to the product, especially given renewed focus on the vocational rehabilitation and back to work services offered by insurers which benefit employers as well as employees.
In a nutshell
Often the foundation of an employee benefits programme, the popularity of group life and disability cover stands the test of time with more employees covered and policies insured in 2017 than ever before. Even through tough economic times, employers have stuck with this benefit, which demonstrates its longevity and appeal. This should encourage ambitious advisers to seek new and innovative ways to reach new employers, there are clearly many more out there who could benefit from the important cover that group risk products provide.
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