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GIP premiums at lowest level since 2004

11 May 2010 Breaking News

The group risk market took a heavy hit in 2009, with in-force premiums falling by 7.7%, according to Swiss Re's annual Group Watch report. The level of group income protection premiums in force is now at its lowest level since 2004.

Premiums for death benefits fell for the first time in several years, by 5.1% compared to 2008, while group income protection premiums fell by 12.5%. However, critical illness insurance premiums rose by 6.6% (smaller than the 22% increase seen in 2008).

While pressure on corporate payrolls during the recession seems to have constrained market growth, the value of benefits underwritten increased on all accounts (life, income protection and critical illness) as providers fought fiercely to maintain a competitive edge. There has been some speculation that some pricing in 2009 was unrealistic and may need to be corrected this year. However, the authors of the Swiss Re report believe that they have identified positive signs that the market is operating more effectively.

"If we look back historically, intermediary views on product providers and administration would be almost unanimous in being very critical of the way life offices operated and there would be some views going the other way from providers to intermediaries," said Ron Wheatcroft, technical manager at Swiss Re. "There was a joint agreement that it did not work very well but that has pretty much disappeared. There are still one or two comments and there should be a healthy tension in a £1.5bn market but generally it does seem to work much better."

He cited 'one and done' underwriting as an example of how providers had simplifed processes.

Product break-down 

The number of in-force group death benefit schemes fell slightly in 2009 from 42,366 to 42,244 while the number of lives covered fell by 3.9%. Providers and intermediaries surveyed by Swiss Re were split on whether the market would increase or decrease in 2010. The report notes some concern that employers might close existing schemes, but cites modest savings, contractual liabilities and the competitive marketplace as constraining factors.

The number of lives covered under group income protection schemes increased slightly, although the number of schemes fell from 18,619 to 17,796. Approximately 7.1% of schemes were written with a limited benefit period, up from 6.7% in 2008. A majority of those surveyed expect the market to fall still further, citing uncertainty around employment legislation and the difficulty for employers of justifying costs.

While critical illness premiums increased, the number of schemes in force and the number of lives covered both fell. Almost half of the total premiums held are accounted for by flexible benefit schemes, which both providers and intermediaries said they expected to grow steadily over the coming years.

Commentary

The report includes commentary from 16 people working for product providers and 25 from intermediary firms and highlights both threats and opportunities for the market in 2010. A possible risk is the introduction of auto-enrolment for pensions, which could result in employers cutting back on benefits to meet extra pension costs. However, respondents were positive about the progress made by trade body GRiD in raising the profile of the industry.

Furthermore, Swiss Re's Wheatcroft suggested that the four to seven million people likely to join the pension market with the introduction of auto-enrolment presented the group risk industry with an opportunity to extend other financial products to an underserved group, particularly if the retail distribution review further constrains access to advice.

The role of the group risk market in transferring risk from the public to the private sector and in providing protection to lower-paid employees should not be underestimated. Currently, group death benefits represent around 40% of all insured life cover held in the UK and group income protection provides more than 70% of all long-term disability benefits. The Insurance Industry Working Group's vision for 2020 estimates that an increase in the private sector's share of protection provision of just five percentage points could save the public sector almost £17bn a year. 

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