Swiss Re is warning that personal accounts could damage the group protection market and increase the protection gap.
Head of technical development Ron Wheatcroft says employers may not feel incentivised to provide group protection after auto-enrolment in personal accounts is introduced.
He says: “Employers are more and more under the cosh financially and if they have to meet a pension contribution, they are going to look to find savings elsewhere.”
Aegon Scottish Equitable head of marketing for employee benefits Simon Bailey says: “There is a danger that personal accounts may lead employers to question the other benefits they offer in their package to employees. If it hit group life, that would be quite grave. It could potentially increase the protection gap.”
Around 40 per cent of life cover in the UK is provided by group schemes. Additionally, eight million people are covered by death-in-service and other group protection schemes.
Wheatcroft says: “It is rather easy to remove good quality group life sales as a cost-saving exercise. Often, the life cover that employees get through their employer is the only cover they have got. The employer could just close the schemes to recover costs.”
At the Association of British Insurers’ conference in London last month, pensions minister James Purnell ruled out introducing protection benefits alongside personal accounts, saying the Government wanted to keep the scheme as simple as possible.
Purnell said: “Add-on features such as death benefits have been suggested but I think the key objectives mean we need to be wary of adding on such bells and whistles.”
Wheatcroft says: “It is a bit disappointing that protection has been described as bells and whistles. It is a bit more important than that.”