Scott Rayner, Group Income Protection Proposition Manager at Canada Life, asks whether Group Income Protection is fit-for-purpose in light of the UK’s ageing workforce.
The Stone Roses were one of my favourite bands growing up in the North of England and they still are to this day. In 1990, they released a double A-sided record that included the tracks ‘Fools Gold’ and ‘What the World Is Waiting For’. It struck me recently that these songs almost describe my feelings on Group Income Protection policies today.
I admit it’s a strange thought, so let me explain!
It’s a well-known fact that the UK has an ageing workforce, with a third of workers set to be over age 50 by 2020. As an insurer, we know that age is the single largest determinant of someone becoming ill and absent from work. So as the workforce ages, we will naturally experience more absence and therefore more Group Income Protection claims.
As well as increases in life expectancy due to advances in healthcare, more and more workers don’t have the money to retire and are staying in work longer to cover the costs. Recent research suggests that two out of three workers cannot afford to retire, adding more pressure on our ageing workforce.
So what does this tell us in the context of Group Income Protection? Firstly, we have a workforce that’s getting older, which will increase the number of claims. Secondly, the older an employee, the more likely they are to become ill and absent from work, which increases the burden of absence on employers.
With increases in claims and absence on the horizon, how has the Group Insurance industry responded?
While more people stay at work for longer, we have only seen 41% of Group Income Protection policies provide cover to state pension age. A high number only provide cover to age 65, which obviously isn’t meeting the needs of an ageing workforce.
As well as the retirement age shortfall, we have also seen an increase in limited payment policies from 10% in 2010, to 17% today. A limited payment period restricts benefit payment to a fixed period of time. So instead of benefits being paid until retirement age, they are paid for a period of two, three of five years, which again does not meet the needs of an ageing workforce.
So with everything we know about the risks of an ageing workforce, benefit design trends show that over half of our customers are not mitigating that risk, and worse, we have nearly doubled the number of limited payment policies over the last five years. Is this the right response? Is this what the world is waiting for from an industry that’s supposed to have employer and employee interests at its heart?
Now, I have no problem with using limited payment periods, particularly five year payment periods where they are used to expand the reach of an existing policy to the whole workforce. I would still rather have the opportunity to demonstrate the return-on-investment of a more holistic benefit design, but I understand using limited payment periods in this way.
What I don’t understand is when we default to eroding the benefits of Group Income Protection purely to drive down costs. Does this protect the employer from the increased risks of an ageing workforce? No, it does the complete opposite and we will pay the price for this short-termism if we don’t start to reverse the trend.
What’s the answer then?
Employers need to partner with an insurer who has the capability to support them with complex absence such as stress, anxiety, depression, work-related stress and back pain. This support will include help to prevent such absence, as well as early intervention services to help resolve absence as quickly as possible.
If employers work with insurers on these absences, we will drive better outcomes. Through Canada Life’s Early Intervention Service, we prevent nine out of ten employees from becoming long-term absent and support eight out of ten back into work before a claim is ever needed. This is the return-on-investment employers can gain from Group Income Protection if they partner with an insurer that has prevention and intervention capabilities.
But it’s not really this sort of absence we see increasing with age. We normally see an increase in chronic complaints, such as those associated with cancer and stroke. So how can prevention and intervention help with these conditions?
The answer is quite simple. By preventing the type of absence that does not need to become long-term, such as workplace stress, the employer saves on the associated costs and can afford to invest in a benefit design that protects both themselves and their most important asset – their people.
As it stands, too many employers are being exposed to the risks that come from an ageing workforce and benefit designs that focus on short-term cost savings, not long-term protection. I believe that Group Income Protection can meet the demands of an ageing workforce, but the benefit design trends we are currently promoting certainly will not.
Insurers need to get out into the workplace and engage with key decision makers, such as the HR and finance directors, to demonstrate the true value of having Group Income Protection. That includes absence management support for the employer and salary insurance for the employees who really need it. After all, that’s why the employer purchased the policy in the first place, isn’t it? We, as an industry, need to remind employers that they have invested in a solution that meets their needs, through better engagement and better articulation of the benefits.
Using limited payment periods to solely drive down costs is the fool’s gold approach to benefit design.
The world is waiting for something else. Can we deliver it?
 Swiss Re 2016
 Canada Life Sales Aid GRP1368-716R