Employers could face higher costs for life, critical illness and income insurance cover, according to research from Aon Consulting, the employee risk and benefits firm. While costs for these benefits may have become cheaper for businesses in 2008 compared to 2007, Aon’s new survey, which tracks UK insurers and reinsurers’ premium predictions for the group risk market, finds some underwriters are predicting rate increases this year.
Aon’s survey covered a combined group risk market worth £1.6 billion of premium. Aon found that:
- 57% of insurers and reinsurers believe the cost of death in service pensions will increase and only 43% believe the cost will remain unchanged or decrease.
- For income protection, only 10% of insurers believe prices will remain static whilst the remainder are equally split as to whether prices will rise or fall
- A majority of insurers, 58%, predict Group Critical Illness prices will remain unchanged, in comparison to 29% that believe they will rise and only 13% that say they will fall.
- 50% of insurers predict premiums for lump sum life cover will decrease, while 12% believe it will increase.
As investment income has decreased, there is pressure to increase premium income but increased market competition will continue to work in the other direction ensuring that rates are kept as competitive as possible.
Insurers underwriting group risk insurance policies in 2008 reduced their premium rates significantly, in some cases by over 20%, or kept them static. Aon finds that 2009 will be more of a mixed bag for employers and trustees wishing to purchase group life assurance, death in service pensions, income protection and critical illness for their employees.
In particular, policies where the claim is paid out over a long term period are more likely to experience rate increases compared to products with a lump-sum payout because of the impact of falling investment returns and increasing life expectancy on the reserving basis on which such schemes operate in the UK.
Almost every insurer believed that the overall market size (measured by numbers of schemes and premium income), would reduce in 2009. The only exception is critical illness where premiums are expected to remain stable, or even grow. While rates are predicted to rise, there will certainly be increased competition among insurers for premium income because:
- There is a belief that employers and trustees will be cutting back on the benefits on offer to their staff in order to save money
- The number of firms stopping trading all together is expected to increase, further decreasing the number of policies written
- The number of insurers in this market is expected to decrease, according to the survey. All underwriters surveyed believe that by year end a number of current providers will no longer be in the market, with most expecting at least two current players to have withdrawn
- However, there continues to be evidence of new insurers wanting to become active in the market who will wish to compete aggressively on price to gain market share.
Paul White, head of risk benefits consulting at Aon Consulting, commented: “Underwriters are telling us that they are going to be fighting harder than ever for every pound of premium because they expect the market to become more and more competitive.
Although the underlying factors will mean insurance premium rates are tipped to rise, in the short term, market competition may mask these factors. In addition, there are still savings to be made – particularly if companies can evidence a culture of seeking to manage risks and take action to control claim costs, from wellness strategies to active absence management programmes.”
Aon’s survey covered a combined group risk market worth £1.6 billion of premium. Aon found that:
– 57% of insurers and reinsurers believe the cost of death in service pensions will increase and only 43% believe the cost will remain unchanged or decrease.
– For income protection, only 10% of insurers believe prices will remain static whilst the remainder are equally split as to whether prices will rise or fall
– A majority of insurers, 58%, predict Group Critical Illness prices will remain unchanged, in comparison to 29% that believe they will rise and only 13% that say they will fall.
– 50% of insurers predict premiums for lump sum life cover will decrease, while 12% believe it will increase.
As investment income has decreased, there is pressure to increase premium income but increased market competition will continue to work in the other direction ensuring that rates are kept as competitive as possible.
Insurers underwriting group risk insurance policies in 2008 reduced their premium rates significantly, in some cases by over 20%, or kept them static. Aon finds that 2009 will be more of a mixed bag for employers and trustees wishing to purchase group life assurance, death in service pensions, income protection and critical illness for their employees.
In particular, policies where the claim is paid out over a long term period are more likely to experience rate increases compared to products with a lump-sum payout because of the impact of falling investment returns and increasing life expectancy on the reserving basis on which such schemes operate in the UK.
Almost every insurer believed that the overall market size (measured by numbers of schemes and premium income), would reduce in 2009. The only exception is critical illness where premiums are expected to remain stable, or even grow. While rates are predicted to rise, there will certainly be increased competition among insurers for premium income because:
– There is a belief that employers and trustees will be cutting back on the benefits on offer to their staff in order to save money.
– The number of firms stopping trading all together is expected to increase, further decreasing the number of policies written.
– The number of insurers in this market is expected to decrease, according to the survey. All underwriters surveyed believe that by year end a number of current providers will no longer be in the market, with most expecting at least two current players to have withdrawn.
– However, there continues to be evidence of new insurers wanting to become active in the market who will wish to compete aggressively on price to gain market share.
Paul White, head of risk benefits consulting at Aon Consulting, commented: “Underwriters are telling us that they are going to be fighting harder than ever for every pound of premium because they expect the market to become more and more competitive.
Although the underlying factors will mean insurance premium rates are tipped to rise, in the short term, market competition may mask these factors. In addition, there are still savings to be made – particularly if companies can evidence a culture of seeking to manage risks and take action to control claim costs, from wellness strategies to active absence management programmes.”
