Government’s impending national insurance contributions (NICs) increase is causing employers to increasingly discard group income protection cover in order to retain the immediate benefit to the workforce provided by group private medical insurance (PMI).
This is according to advisers Health & Protection spoke to following a week in which the important role the insurance sector has to play in returning inactive people to work was discussed at the Association of British Insurers (ABI) 2025 annual conference.
At the event Paul Schreier, CEO at Simplyhealth, maintained providing access to a GP and musculoskeletal and mental health benefits could wipe out 80% of the UK’s productivity crisis and save the exchequer billions of pounds a year.
And Mark Till, CEO of Unum UK, declared that while there was no mention of insurance in government’s Get Britain Working Review paper, the sector is very much aligned to ensuring the UK’s workforce is fit and productive.
But despite this, with employer’s NICs set to increase 1.2 percentage points to 15% from next month, advisers have told Health & Protection that employers are targeting discarding their group income protection cover in order to meet the additional cost created by the hike.
Putting quotes on hold
Naomi Greatorex, managing director at Heath Protection Solutions (pictured), told Health & Protection: “Customers and employers that we were talking to last year that were quoting for group income or group life schemes, put them on hold for the moment to see what the impact is of the national insurance contributions and the cost to their business,” Greatorex said.
“So although I don’t think that employers will necessarily cancel policies which are already in place, because they have already given that as a benefit, what I’m definitely seeing is that employers are very nervous about offering new benefits and new group schemes to employees.
“I think that is an area where we will see a reduction,” she added.
GIP being dropped off
According to Mike Hesch, head of UK employee benefits at Engage Health Group, the advice firm is seeing more ancillary benefits being dropped off – particularly group income protection.
“So they’re saying we’re getting rid of the group income protection because we can’t afford it anymore because we’ve got increased costs from the increased tax,” Hesch explained.
“Predominantly they’re keeping the private medical. Some have got rid of life and income protection. But the income protection is what we’re definitely seeing as the problem.”
And while a “surge” of companies are still adding PMI they are not looking at the additional benefits they can offer, Hesch continued.
“They’re just saying, we can only afford private medical. We don’t want life. We don’t want income protection. We can’t afford it.
“What the clients are saying is private medical helps us to keep them at work immediately.
“So less time away from work because again, you treat them quicker.”
No benefit to employer
Hesch maintained that a key issue is with group income protection, a benefit which is paid to the employee themselves.
“With income protection, they’re saying, after they have been off for three months, whatever it is – six months – then the employee gets paid something, but the employer gets nothing out of it,” he continued.
“Because what they’re saying is at that point the member is off sick -they are not in the business working and it’s not a benefit that’s paid to the company, I’s paid to the member.”
Retaining PMI
Consequently, Hesch says group income protection is the benefit employers feel they can do without.
“That’s one where yes, it gives us employee engagement,” Hesch says.
“Employees like it. They like to have that security and all the rest of it, but actually, the one we hear more noise about is PMI and the PMI helps them as an employer straight away.
“So that’s their rationale when we’re going through it. And that is worrying. They’re saying we can afford to drop off that side of it and we’re saying well, it’s probably not a good thing to do and they’re saying well, we need to cut costs and that’s what we’re going to do.”
Counteracting measures
But Karen Gittings, senior corporate benefits consultant at Titan Wealth Planning, told Health & Protection her clients are developing innovative ways of counteracting the hike.
“They’re putting in voluntary EV (elecric vehicle) car schemes via salary sacrifice so they can then have NI savings on the cost of the car,” Gittings says.
“But people are being quite imaginative around it.
“I’m certainly not seeing the affect to new business. Clients are concerned about the increase in private medical insurance premiums and I have had one client cancel their income protection because of the huge increase on the PMI scheme.”
“They seem to value the private medical insurance more which is worrying, but that is just one client.”
Link between GIP and inactivity
Perhaps more worryingly, Gittings added, is the fact the she does not think government sees the link.
“At Grid, we’re always trying to convince them how group income protection with all the rehabilitation support we provide and everything, does keep people in work or lessens the duration and incidences of absence,” Gittings said.
“I don’t think the government sees the value in it personally,” she added.
“It is quite worrying, but with these NI hikes, I was chatting to not a massive client, but certainly not one of my smallest, and they were saying this extra NI is costing them £5m a year.
“So the price of an income protection scheme is going to be a drop in the ocean. It’s going to go nowhere near making up that extra cost.”
