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Group Income Protection? - Think Twice

Dual Benefit - A unique income protection policy that protects both employers and employees.

Running a small business is a challenging task. Every employee has to pull their weight and it is important to recruit and retain the right people. Long-term sickness absence can be devastating for the business as well as the employee. An innovative new Group Income Protection (GIP) product from Unum - ‘Dual Benefit GIP’ - can provide finance and effective rehabilitation to minimise the impact.

This new product has been specifically designed to meet the needs of businesses with between 3 and 99 employees. Benefits are paid much sooner than under the classic form of GIP, and additional finance is provided to help the business cope with the loss of an employee, e.g. for recruiting temporary replacement staff.

The need for Dual Benefit GIP

At one time or another most businesses will need to manage the prolonged absence of an employee from the workplace. Although most absences are of short duration, a good number are for longer periods and the costs and risks to the business of coping with an employee’s longer-term absence can be significant.

This new type of GIP policy provides dual benefits for the employer and employee, as well as range of other features. The product has been designed for smaller businesses that do not currently offer GIP to their staff and may not offer any form of occupational sick-pay. We have carried out specific research into these types of business to understand their needs and gain their input into designing Dual Benefit GIP to meet those needs.

The needs of businesses and employment patterns have changed significantly in recent years

• Jobs are not for life
• Mobility
• Flexibility

There is a need for skilled workers(recruitment/retention) and a need for businesses to remain competitive

Significant untapped Market Opportunity

At the start of 2006, UK National Statistics identified 330,000 private companies that employed between 5 and 99 staff, with a combined workforce of around 5 million employees. This sector represents 20% of the working population (a working population of 25m excluding nearly 4m self-employed –source: Economic and Labour Market Review August 2007).

By contrast the current GIP market insures around 19,000 group schemes and approximately 1.73 million employees (source: Swiss RE Group Watch 2007).

Companies with fewer than 100 employees represent a significant market opportunity for GIP.

Key features

• Limited benefit payment: 2, 3, 4 and 5 years
  
  
• Additional deferred periods: 4 and 8 weeks (13, 26 incl)
  
  
• Standard Basic benefit, PFC & NIC cover
  
  
• PLUS two automatic new additional benefits
  
  
  1. Business benefit
     
     
     • Additional monthly finance for employer
       
       
  2. Serious Illness benefit
     
     
     • Lump sum paid on expiry of income benefit period
       
     • CI type definitions for incapacity
       
       
• 3 to 99 lives (at inception)
  
  
• Pay Direct or Standard
  
  
• 20% commission
  
  
• Free Cover @ 3 lives
  
  
• Gross pay only
  
  
• Direct debit only.

Product Features

Smaller businesses tend to regard long-term absence as anything over 2 weeks. So, uniquely, for Dual Benefit GIP, we are adding new 4 and 8 week deferred periods to our standard 13 and 26 week options.

Many employers believe that benefits should be paid for a limited period; typically, 2 or 3 years with some employers selecting longer durations of 4 or 5 years. With this in mind, we are offering benefit payment periods of 2, 3, 4 and 5 years under the product.

Most employers are keen to provide some additional financial support for severely incapacitated employees. In response, we have provided an automatic lump sum payment on the expiry of the income benefit period if the employee remains incapacitated from one of a number of serious illnesses described in the policy.

We are also introducing an automatic monthly Business Benefit to provide an employer with additional finance to manage the long-term absence of an employee. The Business Benefit is paid shortly after income benefit is payable for an incapacitated employee and can be used, for example, to help finance temporary replacement staff or carry out reasonable adjustments to the workplace in order to facilitate the return of a disabled employee.

Employers can also select a Pay Direct version of the policy that means that they can direct us to pay the income benefit directly to an employee who is unable to return to work and has left service.

Free cover limit is provided for policies of 3 or more members.

As with all our GIP products our in-house team of Vocational Rehabilitation Consultants will be on-hand to assist in the rehabilitation of an incapacitated employee where appropriate.

Customer Research

We always seek the views of customers when developing our products. During the development of Dual Benefit GIP,we researched the GIP needs of businesses and the views and attitudes of their advisers, to ensure that the product would fit with their specific needs and requirements.

Employers are interested in a GIP policy that starts to pay benefit sooner than the typical 13 or 26 week deferred period and provides benefit for a shorter period. At the same time, they appreciate that a seriously incapacitated employee would value an additional lump sum payment.

Employers also believed that it would be helpful if the policy could do more to help them cope with the long-term absence of an employee both in a financial and practical sense.

The vast majority of advisers felt there was a market for a policy that addressed the needs of smaller businesses. Some of the highlights from the research are provided on the next page.

Dual Benefit - A new concept designed in collaboration with end-users

Employers - what they said

General comments

• No one has tried to sell anything like this at group level, it would be interesting
• As an employer, I like the additional benefit for the employer
• I like the financial benefit to both the employer and the employee, it would be easy to explain to employees.

Deferred periods

• I think the cost to the company of paying full or half pay, the company wants to get out of that as soon as possible…it would be good if it kicked in after 4 weeks
• 8 weeks sounds good but I would like the choice.

Duration of benefit

• I was expecting it would be paid for say one or two years, like unemployment cover on your mortgage
• Two years would be my absolute maximum
• Up to 5 years seems very excessive for a small business - you wouldn’t expect to pay that out.

Business benefit

• If someone is going to be off long-term you would need this support...this sounds attractive more so than the other things you showed me
• That would be very useful I think about 33% would be reasonable anything else might be too costly
• I’ve not heard of that before, it’s very beneficial, it’s very attractive.

Price

• I haven’t got anything I can compare it with but on the face of it that looks reasonable
• I think if I was sitting with the accountant going for that I would choose 8 weeks as a good balance between short notice period and cost
• It’s only a small percentage of the salary that would appeal
• That’s good value insurance, compared to what you pay for employees for healthcare
• Despite my company having an excellent sickness record I might consider purchasing something like this based on these costs.

Typical Premiums per member

Benefit basis: 75% less SPSB

Definition: Own occupation

Occupation class: Typical occupation mix

Average salary: £22,000

In addition to the Basic Income Benefit, Dual Benefit automatically provides an additional Business Benefit of 50% of a member's salary (max £10,000 per month) for 6 months and a lump sum of 2 x salary (maximum £120,000)if incapacity is caused by a specified serious illness.

Notes

Indicative rates based on a typical membership mix. Actual rates will of course be influenced by the particular details of the scheme e.g. age, occupation, location and gender mix.

Availability

This exciting new product will be available from April 2008 for employers wishing to insure between 3 and 99 employees. Level commission of 20% is payable.

A new GIP proposition

• New proposition for new customers
  
  
• Tailored to meet needs
  
  
• More tangible benefits
  
  
• Offering more benefits and choice
  
  
• Increasing value to employer
  
  
• Affordability
  
  
• Targeted at a specific market segment

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UP1520 04/2008