Insurers have outlined to Health & Protection how the changes to national insurance contributions (NICs) will effect employers with group income protection (GIP) plans.
UK businesses now have to pay higher National Insurance Contributions (NICs) as the government has increased the rate employers pay, while lowering the income level at which those contributions start.
The change which came into effect on 6 April means the rate of employers’ NICs have increased from 13.8% to 15%.
Meanwhile, the level at which employers start paying NICs, the secondary threshold, has also reduced from £9,100 to £5,000 per year.
These changes can hit employers offering GIP schemes, including when employees are making claims, while employers also have the option to insure their NICs liabilities on GIP claims, hence the tax changes could result in increasing premiums for this element of coverage.
Health & Protection surveyed the major insurers operating in the GIP market for how they were adjusting their plans to meet the changes and what costs were being passed on to employers.
Of the seven insurers contacted, only Legal & General did not respond or share how it was adjusting plans.
Aviva
For Aviva, existing premium rates and policy terms will be unaffected by the NIC change and will apply until the next scheduled rate review.
It noted that claims that were already in payment before 6 April 2025 will be based on the National Insurance rates at the time of the members’ incapacity.
Claims made after the change in employer NIC, with an incapacity commencing 6 April 2025 or later, will be based on the higher National Insurance rate.
Canada Life
Canada Life said it was not planning any policy changes as a result of the employer NIC increase.
Generali
Generali has outlined how it is approaching the issue with automatic coverage of changes, no mid-year disruptions, and regular premium adjustments at policy anniversaries.
For existing schemes from pre-6 April 2025, coverage of NICs will automatically include the new rates and no rate review is needed. And if premiums were based on scheme salary there will be no immediate premium change.
It said that if premiums were based on insured benefits, then benefits and premiums will adjust at the next annual premium adjustment.
For new schemes initiaited from 6 April 2025, policies will automatically insure the new NIC rates.
There will be no change for claims already in payment or with a deferred period ending before 6 April 2025.
And for claims with deferred periods ending on or after 6 April 2025, benefits will reflect the higher NICs, if employer NICs are covered.
MetLife
MetLife said there were no specific changes being made to its products as a result of NIC increases.
The insurer said the impacts of the increase were being assessed for those schemes coming to the end of their rate guarantee, however it did not give any more details.
Unum
Unum said that it was making changes – but tailored for the needs of specific companies rather than blanket updates.
They also said it was proactively ensuring that advisers are well-informed and equipped to discuss the benefits of this policy option with their clients to help mitigate the impact of these increases.
Zurich
Zurich said in the short term there will be little impact on existing customers, because in accordance with terms and conditions it will absorb the cost associated with the increase in NICs cover until the customer’s current rate guarantee period expires.
At this point the increase in NICs cover will be reflected in new GIP premium and rate.
Additional costs
Group Risk Development (Grid) spokesperson Katharine Moxham noted that employers will face additional costs.
“GIP claim payments are generally treated as continued salary, so increased employer NICs will also be due on GIP claims in payment,” she said.
Even so, Moxham suggested that the financial impact will be relatively insignificant for most employers compared with the main impact on their entire salary roll.
That was because these increases are levied on a much smaller percentage of the workforce, those on claim, and on a lower amount than would otherwise be the case if the employee was still working in their normal role.
Moxham also noted that employers had the option to insure their NICs liabilities on GIP claims, but did not believe this would have a significant effect.
“Employers can choose to insure their NICs due on GIP benefits in payment as a supplementary benefit and we could see a slight impact on premiums because of the increases, but this is likely to be minimal and unlikely to result in a falloff in sales,” she said.
And Moxham argued there was potential for GIP to generate savings in other areas, making it a strategic investment rather than a cost burden.
“Efficient use of the embedded services offered alongside a GIP policy will even enable savings in other areas,” she continued.
“So GIP is the last benefit an employer should cut since it delivers so much and jeopardising the health and wellbeing of staff by making knee-jerk reaction cuts will put the wellbeing of the entire organisation at risk too.”
Work with your adviser
Several insurers recommended corporate clients should work with their adviser to understand the cost implications of the NI changes and the benefits that came with their GIP plans.
Adrian Matthews, deputy CEO of MetLife UK, also emphasised the “tremendous value” of GIP, particularly given the UK’s high rate of working-age inactivity due to ill-health.
“GIP provides tremendous value, especially at a time when the UK has 2.8m working age people out of work due to ill-health,” he said.
Aviva group protection sales director Jason Ellis agreed the financial impact would be relatively limited and the insurer had not had much feedback about it yet.
“It’s worth noting that the volume of questions has been very low, and we haven’t seen any examples of financial concern,“ he told Health & Protection.
“GIP has proved to be resilient during other periods of financial pressure and we believe that demand will remain high.”
Zurich Life head of market management (corporate risk) Nick Homer anticipates little to no drop in GIP sales.
“Overall the cost impact of the NIC changes will be very small in the context of the total GIP cost, therefore we do not expect a drop in sales,” he said.
“GIP is a very flexible product and the cover can always be adapted to meet budgetary constraints, should the impact of the NIC changes be a concern for customers.”
Challenges for SMEs
But its a different picture for Canada Life, which is concerned about the challenges for small and medium-sized enterprises (SMEs), which may consider making changes to their employee benefits approach as a result of the wider NIC changes.
Chris Morgan, head of product and proposition strategy, protection at Canada Life says: “It’s understandable that small businesses are feeling cost pressures as our recent research found six in 10 SMEs will likely change their employee benefits approach to deal with the employer NIC increase.”
However, Morgan adds: “We can take it as positive that four in 10 firms don’t intend to change their practice as they see employee benefits as valuable.
“It’s also good that almost a third of small and medium-sized businesses intend to increase awareness of the employee benefits provided to employees.”
False economy
Liz Walker, COO of Unum also expressed concern that rising NICs might tempt employers to cut back on employee benefits to manage costs – and that cutting back was an exercise in false economy.
Walker says: “It is concerning that employers may feel the need to re-evaluate their benefit packages in order to cut expenditure.
“Reducing group risk benefits to offset the rise in NICs may seem like a practical approach, but it risks diminishing both employee satisfaction and business profitability.
“Our research with WPI Economics highlights that employees with access to a robust range of benefits are willing to contribute nearly £500 on average per year for this access. Employees benefitting from a comprehensive package of support would also pay 46% more for these, compared to the average cost of providing GIP.
“The financial advantages for employers extend well beyond this – investing in such benefits leads to improved sickness absence rates, reduced presenteeism, and enhanced productivity.“
