To Risk Management and Beyond

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As the State steps back and the Government continues its Welfare Reform programme, employers have a central role to play in ensuring effective rehabilitation. Katharine Moxham, spokesperson for Group Risk Development (GRiD) explores how employers with Group Income Protection are well-placed to meet these responsibilities.

The employer’s role is continually evolving. Where once a company like Cadbury would have seen it as an employer’s duty to provide homes, leisure facilities and financial support for workers, this is almost unheard of now. Increased mobility has changed the way we work beyond recognition, with inevitable consequences for an employer’s relationship with their workforce. So today’s provision is likely to be much more streamlined and less paternalistic.

Greater risk sharing goes hand in hand with this shift in attitude and many employers have moved away from an “open chequebook” commitment and towards employee self-sufficiency. This change is not necessarily a bad thing but we need to think carefully about how we ensure business continuity without this framework in place. In addition, fostering self-sufficiency is a noble aim, but it’s no easy task to get consumers to take personal responsibility for their own needs.

The introduction of auto-enrolment may seem incongruous with the shift away from paternalism but in the pensions space, the savings gap and the need to combat “under-saving” into pensions vehicles is well appreciated by Government and policymakers.

However, auto-enrolment is only one of the many expectations that will fall squarely on employers as the State steps back and Big Society and greater personal responsibility emerge.

Welfare Reform

The programme of Welfare Reform currently underway in the UK has been likened to the reforms of post-war Britain following the Beveridge Report. Universal Credit, the Work Programme, the introduction of a cap on welfare benefits and the Claimant Commitment are just a few of the initiatives. Taken together with NHS reforms and Department of Health initiatives, we are facing a new system of welfare support which aims to encourage more positive behaviours and which will pave the way for a major influx of workers back into the jobs market.

State support is changing significantly for those who are ill or incapacitated for any length of time. Employment & Support Allowance (ESA) for the contributory Work Related Activity Group is time limited to one year. The 2.1 million working age people who were on old style Incapacity Benefit are being reassessed and moved onto ESA or other more appropriate benefits using the Work Capability Assessment. This has resulted in a significant number being found fit for work or able to take up work with a little help.

The net result is that there will be less State support for a shorter time and for the majority of claimants, support given will no longer be unconditional but based on them moving towards work. Employers are naturally well placed to deliver vocational rehabilitation and businesses need to ensure they are prepared for the changes as increased expectations for managing absence and rehabilitation back into the workplace are realised.

The call to action for business was clearly outlined in the 2010 Department of Health paper, “Healthy Lives, Healthy People”, which stated that businesses must take greater responsibility for the health and wellbeing of their staff. The Sickness Absence Review has looked at changes required to help people stay in work and whether the balance of absence costs are appropriately shared between individuals, employers and the State and the Government’s response has been well considered. The introduction of an independent Health and Work Assessment and Advisory Service in 2014 (as recommended by the Sickness Absence Review) will bring a sea change into the world of the employer as they become central in delivering the service’s recommendations for the rehabilitation of absent employees back into the workplace.

The Sickness Absence Review recognised the important role that Group Income Protection plays in vocational rehabilitation. Many of the report’s recommendations were very much in line with best practice already adopted by Group Income Protection providers around early assessment and intervention.

Group Risk Insurance

Group Income Protection is one of a suite of “Group Risk” employer sponsored protection benefits (the others being Group Life Insurance and Group Critical Illness). Employers will often promise certain benefits (e.g. death benefits, occupational sick pay) to employees as part of the contract of employment. Rather than bear all of this risk themselves, many employers choose to take out Group Risk insurance policies to cover some or all of their liability. Group Risk benefits are often (but not always) fully insured.

Provided in isolation or as part of a wider benefits package, these employer sponsored products can give employees access to insured protection cover either at a reduced rate or free of charge as they are covered under one “group” policy. This is often more readily available than individual cover since most employees do not generally need to provide medical details before cover is granted.

Group Risk benefits are highly valued as they provide financial protection for employees and their families, yet they are relatively inexpensive for employers compared with some other components of the typical benefits package. The Group Risk market is able to offer generous levels of cover and relatively low premiums, because, generally, the higher risk of individuals in poor health under a policy held by their employer is balanced by those in better health.

Employers are in a unique position to facilitate affordable income protection cover for their staff and the Group Risk market is extremely experienced in providing cost effective cover to groups of employees through the workplace – through voluntary (employee paid), flexible benefits and affinity schemes as well as the more traditional employer paid arrangements.

Group Income Protection

Group income protection is a policy taken out by an employer to cover its promise to provide sick pay to employees if illness or injury prevents them from working for a prolonged period. It can also replace lost income where an employee has to take a part-time or lower-paid position because of illness or injury. It is used by employers as an integral part of their formal absence management or attendance programme, together with additional support services (which are often provided by Group Income Protection providers for free or at a heavily discounted price).

Both employees and employers get access to a wide range of extra support that can be used on a daily basis – even if a claim is never made. Such support services can include absence management, Employee Assistance Programmes, HR advice, GP help-lines, online health assessments, second medical opinion services, fast-track access to CBT and physiotherapy, counselling, occupational health and more.

Group Income Protection has therefore evolved beyond a pure insurance product to a rehabilitation and support service underpinned by insurance. The test for a valid Group Income Protection claim is not whether someone is ill/disabled or not but whether that prevents them from working with reasonable adjustments made by their employer. Group Income Protection providers support employees to help them return to work – often before they reach the point of making a claim.

However, if the employee cannot work due to illness or injury the policy will pay a benefit of a proportion of their salary. The benefit is paid to the employer and then passed on to the employee through the PAYE system. The benefit level is designed to ensure that the employee will be able to maintain a reasonable standard of living but still has a financial incentive to return to work.

Insurers will also work with the employee and their employer to get them back to work as soon as it is appropriate – e.g. by providing access to physiotherapy or Cognitive Behavioural Therapy sessions. Insurers have expertise in this area and can provide access to excellent support services which may not otherwise be available to the employer and employee.

17,224 schemes cover 1.96 million people for annual income protection benefits totalling £56.8 billion (75% of all insured UK income protection cover).1 However, this only represents 6.56%2 of the working age population so the vast majority of workers still do not have this valuable protection through their employer, although some employers provide some benefit but choose not to insure it.

The group risk industry paid out £305 million in annual income protection benefits to a total of 13,955 families during 2012, thus saving the State considerable burden. The average claim was £21,872 pa3.

It’s important to recognise that employers are not obliged to provide this benefit and those that do therefore make a sizeable contribution towards protecting the UK population against the financial devastation of loss of earnings as a result of illness, accident or disability.

It is also important to recognise that employer sponsored Group Income Protection gives employees access to financial protection at no or low cost and that, generally, a generous basic level of cover is given to all members of a group policy without the need to provide medical evidence and irrespective of their state of health. This is extremely advantageous – not only for those who might otherwise not be able to afford to make their own provision but also for those who have health conditions that might otherwise mean that they are either declined or charged extra premiums for cover under an individual policy.

Early intervention is one key reason why the Group Risk industry has historically been more successful than the State in managing a return to work. An employer with a Group Income Protection policy is currently able to assess an employee’s level of incapacity and to commence a return to work programme long before any assessment for State support is even due to commence. Group Income Protection is well placed to deliver benefits and services to employees that offer increased protection to them and their families from financial distress, whilst also offering employers protection from the increasing burden that Welfare Reform will place upon them.

The UK’s ageing population and the need to make greater provision for a longer retirement and long-term care has dominated our thinking in the pensions/savings space. However, very little account has been taken of “healthy” life expectancy versus actual life expectancy. Recent ONS figures4 on this indicate that even if we solve the pensions and long-term care crises in the UK, there could still be a significant period of time where anticipated working life will coincide with deteriorating health. Without Group Income Protection, employers could struggle to deal with this eventuality and the reality may be that it was a false economy to extend State Pension Age as a greater proportion of the population could spend a significant period relying on the State in the years between health/employment and the point at which they draw their pension.

The Government has a role to play in raising awareness of the need to protect income against the consequences of prolonged disability and the importance of the workplace in doing this, in the same way as they have done for pensions. Calling for financial incentives is not viable in the current fiscal environment but perhaps there could be a rethink on whether all of the current auto-enrolment contribution has to go towards a pension. If a small amount could be be diverted to income protection, employers would incur no extra cost but could still facilitate access to this vital means of reducing the UK’s sickness absence burden and producing a more financially resilient society.

Katherine Moxham

Katherine-Moxham

About GRiD

Founded in 1998, Group Risk Development (GRiD) encourages awareness and uptake of corporate group risk protection benefits – income protection, group life insurance and critical illness cover – on behalf of its members which include insurers, reinsurers and intermediary businesses.

Under the chairmanship of David Cross, Head of Benefits, General Consulting, Towers Watson, GRiD aims to enhance the industry’s profile among media and stakeholder groups. The Group provides a collective voice to Government and participates in industry wide initiatives such as the qualification in Group Risk launched jointly with the Chartered Insurance Institute. In May 2009, the Group appointed its first dedicated spokesperson, Katharine Moxham, to provide expert media comment on a full range of group risk issues.

In July 2010, GRiD was named Organisation of the Year by the Protection Review.

http://www.grouprisk.org.uk

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