Critical illness is the newest kid on the block when it comes to group protection cover, but this benefit is no longer the preserve of large corporations.
Group CI is often provided as a voluntary benefit due to its tax treatment, but a couple of simple changes could drive increased uptake from employers, particularly SME firms.
Continued education of employees about the product is vital due an ever evolving product and high numbers of declined claims.
But advisers suspect demand is only likely to continue amid changing demographics, higher levels of instances of cancer in the general population and the upcoming findings from the Mayfield Review which promises to ensure employers take a far more active role in the health of their employees in future.
Tax treatment driving product
Group CI is the youngest of the three group risk products and was launched in 1991 on the back of the success of individual CI policies.
Frustratingly, one of the most decisive factors in its current role, availability and product development has been how tax arrangements are applied.
As Katharine Moxham, spokesperson at group risk industry trade body Grid, tells Health & Protection: “Where group CI is paid for by an employer to provide cover for employees, corporation tax relief is given on the premiums.
“The employer is liable for Class 1A National Insurance contributions on the premiums and premiums are treated as a P11D benefit for employees because the benefit is paid to an employee tax free.
But she adds that due to the potential for a P11D tax charge if the employer pays the premium, most employers choose to provide group CI on a purely voluntary basis, where the employer facilitates the cover but the employee pays for it.
Or it is offered as part of a flexible benefits arrangement, where again, the employee pays for the cover.
“In this case, the premiums the employee pays do not qualify for tax relief,” Moxham explains.
“As a result of the largely voluntary nature of the risk, rather than medically underwriting every employee who selects the cover, group CI operates with a pre-existing conditions exclusion (PECE) in order to keep the administration manageable for employers – although high earners under a group CI policy will still be underwritten for their benefits above a certain level.”
Existing conditions and P11D
Consequently, a customer with an existing medical condition will not be able to claim for this or a similar or related condition under a group CI policy.
“They will, however, be covered for all other conditions – for example if someone has already had a heart attack, a claim for cancer would still be paid,” Moxham continues.
“For individual CI policies the cover is underwritten at outset and the underwriting process considers existing medical conditions, which may lead to no cover being granted at all.”
However, were the P11D charge be removed while maintaining the tax-free benefit payment this would allow a lot more freedom for the product to evolve and potentially expand.
Moxham believes this would enable employer-paid compulsory cover, which in turn would mean that group CI insurers would be able to operate without a PECE, and reduce the potential for declined claims.
She argues that while the potential loss of takings to the Treasury would be minimal, it would encourage more employers, particularly SMEs who do not currently run P11D reporting, to fund this benefit for their workers.
“Since employees can use the payment from a group CI policy to supplement sick pay, to pay for medical treatment, to pay for home modifications, palliative or ancillary care and such, extending the reach of this benefit would save the state considerable burden,” Moxham continues.
“Spouses and partners can also be covered; so group CI benefits can mean employees don’t need to drop out of the workplace to look after them.”
Susan Bourke, head of risk and protection at Broadstone, echoes those calls, adding: “The perception of CI as a taxable benefit-in-kind complicates employer-paid schemes and flex arrangements using salary sacrifice.
“A change here could significantly boost uptake, and the industry should continue to lobby the government to review the taxation of what is an essential health benefit.”
Growing voluntary interest
While these tax changes are not likely soon, there appears to be growing interest on a voluntary basis.
“The introduction of more accessible and affordable benefits technology is driving the increased demand across sectors and segments.” WTW head of risk benefits Matt Pincott points out.
“Unsurprisingly GCI is popular for those who are middle-aged and above, with families and financial obligations, and there is also a trend for younger people in their 20s and 30s to select GCI due to improved awareness and education.
“The continued innovation of accessibility and employee communications through flex or voluntary technology will be crucial to driving greater awareness, financial education and ultimately demand.
“As cover is chosen by the employee themselves, employee awareness is crucial. There is a challenge for us as a market to consider how we can provide enhanced employee communications and education in today’s digital world.”
Explaining the benefits
Mike Hesch, head of UK employee benefits at Engage, says the benefits of critical illness, as with income protection, need to be explained to potential clients.
And the two products can sometimes be chosen together or separately.
“Very different benefit outcomes are available if a member of staff is unwell – then we find employees will either choose both plan types or decide one type of benefit is more appropriate to their needs,” Hesch says.
“There are a wide range of clients choosing critical illness from varied industry types.
“We don’t target particular types of clients and industries for critical illness, instead we make sure a thorough fact-finding of clients is undertaken and clients understand the different range of group protection plans available.”
Highlighting differentiators
Mark Witte, head of health and risk consulting at Aon, argues a detailed understanding of what differentiates each provider’s offering is key for employers – as is subsequent clear and effective communication of relevant details to employees.
“The majority of product development has come not in the core product itself but in the increasing range of value added services that are being included with the insurance,” Witte says.
“Additional children’s benefits, concierge services, personal nurse adviser services and cancer drugs funds are all examples of potential valuable additional service now included under a GCI policy.
“Making employers fully aware and helping them to take advantage of these services should be a key area of focus.”
High percentage of declined claims
For David Williams, head of group risk at Towergate Employee Benefits, clearer guides and better employer and employee understanding perform an important role.
“It’s always been the group risk product with the highest percentage of declined claims, mainly because the declined claims didn’t meet the illness definition,” Williams says.
“Legitimate declines can still cause frustration so clarity around conditions and what is covered is key and the insurers are working on this – guides are improving and the customer experience is better.
“The insurers have also added the usual core wellbeing services via smartphone app, so this has also improved the product.”
As James Walker, head of product and proposition – group protection at Legal & General, says: “Regardless of whether the coverage is group or individual, it is crucial that claims are paid promptly, as claimants are often facing challenging times and need peace of mind.
“Many providers will often do as much as they can to pay a claim. For instance, if obtaining a GP report is likely to cause delays, we’ll speak directly with the employee and use any available medical correspondence, like clinic letters, to support our assessment.
“Traditionally, critical illness cover is more widely sold in the individual market. this incidentally, helps explain why group critical illness is seen as attractive for flexible benefit schemes, it gives individuals choice.”
Aiming to pay claims
And as Jenny Black, employee benefits consultant at Incorporate Employee Benefits, points out – insurers are typically doing their best to pay claims.
“I haven’t had a lot of experience with claims, but I had one claim recently on a small, closed group voluntary scheme,” Black explains.
“The employee didn’t know they had CI cover and so several years had elapsed since diagnosis. The insurer, Aviva, proceeded to assess as normal and the claim was successful.
“This provides us with some confidence that group insurers, Aviva at least, do not go out of their way to decline claims, even years after the CI event.”
As for Aviva, Jason Ellis, group risk distribution director at the insurer, maintains that as demographics shift, so too does the need for this type of protection.
“The rise in renting and the growing number of families with young children mean the family-focused benefits of group critical illness cover are more important than ever,” Ellis says.
“A lump sum payment can help cover treatment costs, bridge income gaps, and ease financial pressure, allowing people to focus on what matters most: recovery.”
Increased cancer cases
A further driver will unfortunately be an expected uptick in cancer cases.
“We believe the macro environment and the demographic profile of the UK working population will continue to accelerate the demand for GCI, because the employer and employee need will undoubtedly increase,” says Nick Homer, head of market management at Zurich Corporate Risk.
“We expect cancer incidents to increase within the working population and cancer-related absences to increase, therefore access to timely and appropriate medical support will be a challenge.
“Employers will need to tailor their benefits provision as a result of workplace health trends, rising medical costs, and budgetary constraints, while core mid-market employers will need to implement the technology that will enable them to introduce a flexible or voluntary benefits GCI solution.”
Mayfield Review
These are not the only factors driving demand.
Earlier this month Sir Charlie Mayfield told the ABI’s Keep Britain Working conference that his review will recommend a big shift from health being predominantly the preserve of the individual and the NHS to one where health becomes much more of a partnership between employees, employers and providers.
And this presents an important opportunity for the market, according to Chris Morgan, head of product and proposition strategy, protection at Canada Life.
“The independent Mayfield Review, commissioned by the government to explore the role of the workplace in improving health and wellbeing, is an important opportunity to change the system and support employers of all sizes to understand the benefits of these services to their business as well as their employees.
“The review has already identified the importance of a preventative approach in helping people to stay in and get back to work after ill-health because prevention initiatives and employer support do make a real difference.”
