Strategy

How insurers and gov can reduce the disability protection gap

Swiss Re’s Ron Wheatcroft examines the opportunities for insurers in the wake of the UK Government’s Green Paper on work and welfare 

Ron Wheatcroft, technical manager, vice president, Europe, Middle East and Africa at Swiss Re, tells Life Insurance International about the opportunities for insurers in the wake of the UK Government’s Green Paper on work and welfare what needs to be done to reduce the disability protection gap.

In October 2016, the UK Government issued a Green Paper consultation on work and welfare, seeking views on how to transform employment prospects for disabled people and for people with long-term health conditions.

Overall, the level of insurance industry engagement with the Green Paper has been very impressive with responses and proposals coming forward from insurers, trade bodies and reinsurers such as Swiss Re.

The total number of responses (not all from insurance!) ran into thousands. The industry is now waiting for the Government’s response to the Green Paper in order to take forward discussions.

The Green Paper was very positive about the role employer-provided long-term disability income policies could play.

Already, these arrangements, which pay a percentage of pre-disability income when someone is unable to work as a result of long-term sickness or disability, provide 80% of all insured benefits in the UK.

The positive tone in the Green Paper recognises that there is much more which could be explored to develop this market further.

Disability protection gap ​​​​​​​

Some larger employers and public sector employees do have non-insured arrangements in place to pay long-term sick employees but currently, the UK has the largest Disability Protection Gap in Europe with only 11% of the workforce having any insurance cover in place if they become long-term sick.

Meanwhile, ever increasing pressure on budgets mean that state support is falling and expected to fall further in the future: potentially this presents a very big opportunity for the long-term insurance market in the UK.

For group risk insurers, the number of in-force policies fell for ten consecutive years until 2016 when the market showed a very small increase. Although the drop over ten years was only 1% each year on average, this highlights the challenge of persuading more employers to purchase this cover.

Much of the fall may be attributed to merger and acquisition activity and to firm closures.

Overall, in-force policies tend to remain in force as employers experience for themselves and use the comprehensive package of support services available to them, such as early intervention to help when somebody is off sick, rehabilitation support, legal help lines and line manager training, all designed to support a healthier and more productive workforce.

Increasingly, these benefits are no longer regarded as “add-ons” and this more integrated approach to marketing may be key in encouraging market growth.

The UK Government has been particularly keen to explore how more smaller businesses could be encouraged to take out cover.

Its perception has been that only larger employers purchase yet Swiss Re’s latest Group Watch 2017 report shows that 68% of group long-term disability income policies cover fewer than 50 members. We are encouraging the Government to build on this positive message in developing its ideas further.

Growing UK resilience is not just about employer schemes, however, as many employers will choose not to set up arrangements for their workforce.

Then, responsibility will fall back on to the individual to act if they would be unable to manage on savings and the very limited benefits provided by the State.

Income protection awareness

The UK insurance market has worked hard to grow awareness of income protection insurance, notably with an industry campaign, branded as 7Families.

Yet, much remains to be done. Although new individual policy sales have increased, they are nowhere near what they could be with just over 100,000 people (below 0.4% of the workforce) purchasing cover each year.

How can we change this? Lack of awareness and a misplaced belief in State provision are issues and one very credible idea is that the Government should compel employers to tell all their workforce what their sickness benefits from their employer and the State are (or aren’t).

Presented well, this could be a much more compelling and direct message than broader generic campaigns which people may not relate to.

Better awareness should naturally lead to greater demand and improved financial resilience but, in some circumstances, the benefit payable from an individual policy when State Benefit rules are applied can leave them no better off at all.

This is a growing and urgent problem: unless it is resolved, it will be difficult to achieve the levels of cover needed to reduce the Disability Protection Gap. Consequently, this is a big priority discussion point and essential if we are to deliver the products and services our customers need.