The only thing going up in the group income protection market is the price.
Over the past two years, the total cost to the market has risen by nearly one-third from £350m in 1999 to £464m in 2001. Yet the total number of lives insured has only risen by 14 per cent from 1.54 million in 1999 to 1.76 million in 2001, according to figures from GE Frankona.
In addition, some employees have reduced benefits to control costs, so the underlying increase is substantial.
Not surprisingly, employers want to know why their premium has risen and what they can do to prevent further increases in the future.
Unfortunately, further price increases cannot be ruled out. Insurance companies across the board may have to tighten their underwriting criteria, evaluating more risks on a case-by-case basis, in an attempt to improve their claims' experience.
This could lead to further premium rises to cover the extra expense of writing each policy. It is a catch-22 situation. The fear is that a more stringent application process and more expensive premiums could deter some employers and make the sales process more difficult for IFAs.
Luckily, there is an alternative and IFAs have an important role to play in highlighting how employers can easily help to minimise the cost of claims to the industry and eventually themselves.
By simply taking a more active role in the management of claims, employers can benefit in a number of ways. By helping valued employees return to work more quickly, they can save themselves and their insurer money.
The changing nature of the industry
No one likes to put up prices – not even insurance companies – but sometimes there is little alternative.
The first step is to take a look at the reasons behind the recent premium increases.
Low interest rates mean that insurers have not been able to generate the same returns from the invested premiums. This would eventually affect their claims-paying ability and is partly why price rises have been necessary.
The nature of claims has been changing. Traditionally, the highest claims were made by musculo-skeletal injuries that were simple to diagnose and cure. Today, stress and other mental conditions have been increasing at an alarming rate and are now the top cause of income protection claims.
About 20 per cent of all claims are stress-related and up to 80 million working days a year are lost to stress.
In addition, the duration of claims is also on the increase, possibly because the cause of stress is difficult to identify and cure, particularly if someone has been off work for a long period.
The number of claims is also increasing. This is probably due to the fact that stress can affect the young while muscular skeletal and cardiovascular problems tend to affect older age groups.
The proliferation of inc-ome protection policies is much higher than in the past and employers often have the attitude that if they have paid their premium, it then bec-omes the insurer's problem – until the renewal premium comes in, that is.
The changing nature of claims means that employers will need to take a much more active role in claims management and there are a number of ways in which they can do this.
Ways of reducing absence from work
Once a claim is made, many employers simply file it away and forget about it. It is not the employer's role to question the validity of every case but it is in their interest to get their trained, experienced and valued employee back to work as soon as possible.
If the employer were to sit down and discuss the case with the insurer, a satisfactory solution may be identified. The insurer knows what questions to ask and exactly what is involved in getting an employee back to work as soon as possible.
For example, an employee who was told he would have to wait 18 months for a hip operation was back to work in just a couple of months after discussions between the employer and the insurer.
The discussions identified that the company offered a private medical insurance scheme on which the employee was entitled to claim. The existence of the private medical insurance had been overlooked by the employer when submitting the income protection claim.
IFAs can take an active role in encouraging dialogue between their business clients and their insurance company.
Using a health visitor to make regular visits
Most insurers have health visitors who make home visits to the claimant. Not only can they check on the progress of the employee but they can also provide useful advice and information to the claimant, for example, on available NHS benefits that they are eligible to claim. IFAs can ensure that their business clients are aware of the additional benefits and services that may be on offer to employees from their insurance policy.
Visits by colleagues
Some employers encourage employees to visit sick colleagues at home to check on their welfare and to keep them up to date with what is going on within the company. Again, IFAs can highlight this as an option to their clients.
The most obvious benefit of successful monitoring of the claims' process is reducing the cost of insurance. Spiralling claims mean spiralling premiums and cutting corners just leads to extra costs at a later date. By taking proactive steps to reduce absence, savings can easily be made in insurance costs.
The employer also saves in hidden costs such as the cost of replacing the employee while they are absent and the cost of the decline in productivity while the new employee undergoes a period of training. Of course, another benefit is that the employer gets his experienced employee back to work sooner than would otherwise have been the case.
An invisible but very real benefit is in positioning the company as one that cares for the welfare of its employees. Providing income protection in the first place is a significant employee benefit which helps staff retention. Also, a company which is proactive during the whole claims pro-cess makes an employee feel as if they are a valued member of the workforce.
The idea of claims management is to find an effective solution to the benefit of all parties. Everyone usually wants the same thing, which is for the employee to return to work as quickly as possible.
IFAs can help. By highlighting these issues and potential benefits, they can help instigate a sea-change in attitude among employers.
The market has never presented more of an opportunity for IFAs than it does now – particularly as the move in the pension market continues away from defined-benefit and towards defined-contribution schemes.
This means that a decreasing number of people will be able to retire early through ill-health as pension funds will simply be inadequate to support them.
There is a strong sales message there and IFAs can play a significant role in delivering it.