Why you should regularly review your Group Risk Policy

Why you should regularly review your Group Risk Policy

When our corporate clients approach us they’re often looking for comprehensive benefits package for their employees that’s cost effective and relevant to their workforce demographic. Paul Mitchell Director of Corporate Solutions at Wren Sterling answers the important questions about reviewing a Group Risk policy and provides some tips for getting it right.

Wren Sterling (WS): Before we get started, what is group risk?

Paul Mitchell (PM): ‘Group risk’ is the term given to a range of insurance-based company-sponsored employee benefits including group life assurance (death in service), group income protection and group critical illness.

Group Income ProtectionGroup Life Assurance (Death in Service)Group Critical Illness
(Death in Service)
Will pay a level of continuing income during employee’s absence for illness, injury or disabilityProvides a benefit on an employee’s deathPays a tax-free lump sum to an employee on diagnosis of serious medical condition or surgery

WS: Why might a firm choose to adopt a group risk strategy?

PM: Employees look at more than just base salary when comparing remuneration packages. By implementing a group risk policy, you are giving that ‘something extra’ whilst also saving money.

WS: How can it save money?

PM: Group policies benefit from economies of scale, and avoid the need for each ‘member’ to be underwritten individually. The cost to provide such benefits are often lower than each individual taking out a plan themselves, yet the perceived benefit is far greater than the cost of premium.

For example, an employee in his 20s with a young family and a salary of £25,000 is a member of his employer’s Group Life Policy. This policy provides a typical of four times’ salary. If he should he die, his family would receive ‘four times’ his salary as a tax-free lump sum – so this promised benefit would be £100,000.

To provide this benefit, the employer may pay as little as £5. If the employer had given that same £5 to the employee as a monthly wage rise, after considering tax and both employer and employee National Insurances, this could translate to little more than £3 extra a month in the employee’s hand.

WS: Can smaller firms still access group risk schemes?

PM: Generally, schemes can be set up for a minimum of three employees. Start-ups, or other businesses with just one or two employees can still get cover for their employees, but this is typically written on an individual ‘relevant life’ basis and rather than as a ‘group’ scheme.

WS: Apart from peace of mind, are there any other benefits of Group Risk policies?

PM: For small businesses with limited HR resources, additional benefits can be extremely valuable as the insurer assumes responsibility for managing the employee’s return to work following a period of absence. These benefits will differ from provider to provider. Many insurers will offer support services with Group Life plans that can help the employee and their family with probate and bereavement counselling – and Group Income Protection generally covers between 50-70% of income, and often comes with access occupational health services to support the employee’s recovery and return to work.

Group Risk: the facts
Only 18% of employees have any critical illness or income protection cover that would help them financially if they were to develop a serious illnessUK Group Risk industry paid out £1.5bn in claims in 2016: a £100m increase on 2015, and equivalent to £4.1m a day2,289 people were helped back to work with active early intervention support from an insurer

WS: Okay, so let’s say a company takes out a Group Risk policy. When should they review it? When they gain or lose an employee?

PM: If a business changes and doesn’t review their policy, their premium could be too high and they may be paying more than they need to. Group Risk plans are typically renewed annually as rates are often guaranteed for two years.

Although it differs from insurer to insurer, a mid-year review may become necessary with a deviation of +/-25% in the number of employees. In other cases, a plan could have a ‘last rate guarantee’ or ‘benefit insured at inception’ which ensures that their rate won’t change for a certain amount of time.

WS: What if a company has been paying too much/too little? Can they get a refund?

PM: Definitely. Employers often submit employee data from the past 12 months, and the insurer then calculates any deficit in premium or refund due. For example, if a scheme covers ten people, but in the middle of the year two people had left, a proportional refund would be due. In this case, a tenth of the total premium would be refunded.

WS: What should you consider when reviewing a Group Risk policy?

PM: Group Risk policies can be as unique as your business, so it’s important to check what you have and update your scheme regularly to ensure they remain competitive. Price is obviously important and providers do alter their rates on a regular basis. A financial adviser will compare the rates on offer against their experience of each provider’s administration services and claims history. A good adviser will also assist with personalising a company’s policy, devising employee categories, outlining definitions and plan terms – and may also assist with managing and submitting claims.

Next steps

If the thought of negotiating a competitive Group Risk policy sounds daunting, remember that you can reach out to a financial adviser for help. Wren Sterling’s advisers take the time to understand the needs of your business, and scour the market to find the lowest premiums and the most cost-effective cover.

For a review of your existing protection arrangements, please contact your adviser or email [email protected] to arrange an initial consultation.

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