Paul Avis: Right product, right time?

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Group Income Protection (GIP) provides an income during periods of disability, typically over 6 months, and is set for a resurgence with State benefits changing. From 6 April 2017, applicants for Employment and Support Allowance who are assessed as unfit for work but capable of work-related activity will receive a reduced State benefit, equivalent to Jobseeker’s Allowance. The value will fall from £5,312 to £3,801 per year. Can anyone really live on this?

Is now the time to consider GIP?

There is disappointment in the size of the existing GIP market. Many are perplexed as to why more organisations have not bought it. Cost is sometimes cited, but budget options are available, starting at around a quarter of a per cent of salary costs.[1] Some say the product is complex, but any complexity is around additional benefits which characterise a market that prides itself on the non-financial aspects of the product.

There are Early Intervention Services, using focused vocational rehabilitation to return 80% of employees to work within 7 weeks on average,[2] Employee Assistance Programmes, second medical opinion and Treatment Sourcing Services available. All are at no cost to the user and can be used without claiming.

The need is there. The illusions of “it will never happen to me” and “I’ll be fine if it does” are being dispelled. Around 250,000 people leave employment each year due to ill-health and State disability benefits levels are unbelievably low. Around 2.4m are people already claiming, with an estimated cost to the UK of £36bn.[3]

Much of the premium growth is due to altering risk factors, e.g. low interest rates, ageing workforces and increasing claim incidence with schemes tending to be for larger employers, as well as increasing insured employee numbers.

True premium growth is hard to assess, because the percentage of limited payment plans which pay for two to five years instead of to 65 or State Pension Age (SPA) is growing; they now represent 16.9% of schemes (9.4% for five years and 7.5% for other payment periods). By premiums, this is 36.6% of the market (19.9% for five years and 16.7% for other periods).[4]

Less than 2% of organisations have this cover. While employee numbers and premiums are growing, the challenge is getting new employers purchasing the benefit. Any organisation struggling with staff attraction and retention; that would worry about an employee living on £3,801; is interested in value-laden service as well as financial benefits – perhaps now is the time to consider GIP. It certainly is the right product at the right time in my view.

[1] GRP1383

[2] Canada Life research

[3]https://www.abi.org.uk/~/media/Files/Documents/Publications/Public/2014/Protection/Welfare%20Reform%20for%20the%2021st%20Century.pdf

[4] Swiss Re Group Watch 2016

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