An ageing working population will change both the types of claim that are made and the way employees want to be covered says Edmund Tirbutt
It is well known that stress-related conditions have become the most common type of income protection claim, but the prospect of an increasingly ageing workforce could eventually see the emergence of some very different claims patterns.
Vanessa Sallows, underwriting and benefits director at Legal & General, is expecting to see a marked rise in musculoskeletal claims the next 15 to 20 years, as older people are more prone to arthritis and general wear and tear. At Legal & General, musculoskeletal conditions currently account for only 18 per cent of total income protection claims notifications, but Sallows believes they could eventually overtake stress-related claims, which currently account for 42 per cent but are less common among older people.
An aging workforce will also lead to a significant increase in cardiovascular claims, says Sallows, currently responsible for only 3 per cent of notifications, and she points out that the fact that they were the highest cause of claims 20 years ago is a good illustration of just how patterns can change.
Although Sallows is not expecting any discernable shift in attitude from employers towards this issue during the next five years, she believes that that an ageing workforce does create an even more compelling case for having group income protection. Even if taken on a voluntary or limited-term basis, the product can still offer help with rehabilitation and can be particularly crucial in advising employers in the area of reasonable adjustments demanded by legislation.
She says: “Work can provide mental stimulation and social interaction. If individuals enjoy their jobs, do them well and get support from employers, there is no reason why they shouldn’t work until their mid 70s. But it may require employers to make reasonable adjustments and this is where income protection insurers can help via rehabilitation and occupational health facilities. Mental acuity can become impaired from as early as an employee’s late 40s and macular degeneration is the single biggest cause of loss of sight or impaired sight in the over 50s.
Because it affects people’s central vision, the latter may require employers to provide magnifiers for printed copy or computer software that magnifies print. Software can even tell those with seriously impaired vision what’s on the page via voice messages.”
But it seems unlikely that insurers will be spending too much energy using the ageing population theme as a marketing tool during the next few years. They are acutely aware that most employers have far too many other things on their plate and that many currently have their work cut out simply to stay in business.
Dr. Doug Wright, head of clinical development at Aviva UK Health, says: “In the UK we do know that the biggest risk factor is age for the vast majority of chronic illnesses, and this is definitely also true of more acute serious illnesses such as cancer, cardiovascular and musculoskeletal degenerative conditions. In older workers you will see more of these conditions, and ageing could combine with other trends such as people not being so active and becoming overweight, which exacerbate conditions such as diabetes and joint problems.
“The additional healthcare needs of the ageing population in the UK is estimated to require an additional 1 per cent of the NHS Budget each year and, although the effect on workers could be less because a lot of the NHS cost is driven by the extreme elderly, it could be signs of a trend. This should all be giving employers cause for concern but at the moment it tends to be lower down the priority list than most other things.
“It’s a long term problem similar to the one we’ve seen build up with lack of pension funding,” continues Wright, “and because it feels a long way away there is no action being taken. I don’t think we are currently seeing any impact on group risk products or related absenteeism or wellness type services. At the moment insurers are not majoring on it because they realise employers have other priorities. The Government’s sickness absence review won’t have a direct impact on ageing but it may boost employer awareness of those sorts of issues by getting them to look at health generally.”
Exactly how much of a problem ageing becomes to group risk in the future depends primarily upon how common it becomes for employers to provide benefits beyond the State pension age, now that they don’t actually have to as a result of group risk enjoying an exemption from the scrapping of the default retirement age.
Most commentators stress that ageing is not a huge rating issue for group life because, unlike group income protection, only schemes that actually have members aged over 65 - or above any future State pension age - are affected. So the majority of group life schemes already cover deferred retirees up to age 70, and in some cases even to age 75. For the same reason group critical illness cover, although more expensive, is also commonly available until age 70. Nevertheless, Paul Avis, sales and marketing director at Canada Life, has seen enough examples of employers reverting to ceasing both life and critical illness cover at State pension age to suggest the beginnings of a trend.
The Government’s sickness absence review won’t have a direct impact on ageing but it may boost employer awareness of those sorts of issues by getting them to look at health generally
With income protection, where premiums would otherwise have to reflect the fact that claims for scheme members of any age could potentially run well beyond 65, nobody disputes that the vast majority of schemes still don’t offer cover beyond State pension age. Where opinions differ, however, is with regard to whether this situation is likely to change.
Some experts anticipate that it will become commonplace for employers to offer group income protection cover to those who work until at least age 70, because excluding them would not sit comfortably with providing cover to younger, less experienced colleagues. Others expect most income protection benefits to cease at State pension age.
David Dolding, head of consulting at Lorica Consulting, says: “Of around 350 group risk clients we have none currently going up to age 70 on income protection, although some employers insure people on an age-rated basis by costing each year on the numbers aged over 65. I don’t see anything changing, and I think group income protection will just become something older people do without because the older someone gets the more difficult it becomes to get them back to work. The mindset will probably evolve that anyone intending to work beyond State pension age should ensure that their pension arrangements put them in a position where they are not dependent on an income protection contract.”
Chris Ford, director of group risk at Jelf Employee Benefits, agrees that employees aged over State pension age who go ill are more likely to look at their pension options than to try to return to work, but feels that, while this will reduce the need for long-term income protection for older workers, we could see them commonly being offered cover with benefit periods limited to two years. Interestingly, research currently being carried out by Swiss Re is suggesting that the early stages of such a trend are already in evidence.
Ron Wheatcroft, senior technical manager at Swiss Re, says: “One of the things we are picking up early in our research is that there is a lot of interest in using capital options at the end of a two year benefit period, and we are getting feedback that employers might be looking to offer this approach regardless of age. Last year’s research also showed a significant jump in limited term plans of between two and five years, and I think this was driven by the age discrimination legislation as employers started to address risks. So age is already having an effect.”
Ellipse approach should suit ageing workforce
John Ritchie, chief executive, Ellipse
Ellipse, which entered the group life and critical illness cover markets in 2009 and which intends to also enter the group income protection market later this year, expects its unusual single premium costing approach for all sizes of scheme to prove a major selling point as employers increasingly offer group risk benefits to employees who continue to work beyond State pension age.
Single premium costing involves applying age-specific rates to each member of a group risk scheme, the scheme premium simply being the aggregate of each member’s premium. Whilst other group risk insurers tend to use this for schemes with less than 20 members, for larger schemes they charge benefits for all members at a unit rate per £1,000 or £100 of cover.
“The audio-visual approach is best as we can get some of the best brains to share their thoughts”
John Ritchie, chief executive of Ellipse, says: “Although other insurers have typically treated employees aged over 65 as lying outside the unit rate they may not continue to do so if the numbers of these individuals increase, and this would skew the unit rate upwards to levels that may not accurately reflect the general age profile of the scheme.
“Using single premium costing is fairer because the cost for each member’s cover is based on the actual risk they present and, because our systems are designed to handle data automatically, it is no harder for us to single premium cost a scheme with thousands of members than one with just a handful.”