Employers could face higher costs for providing life, critical illness and income insurance cover as benefits to their employees.
Aon Consulting’s annual survey of insurers and reinsurers who provide group risk benefits in the corporate market found that, almost uniformly, the underlying cost of providing lump sum life assurance, death in service pensions, income protection and group critical illness to employees was cheaper in 2009 than 2008. Many underwriters predict that these cost reductions will not persist during the year to come.
The survey, which covered a combined group risk market worth £1.5bn of premium found that: 50% of insurers and reinsurers believe they will have to increase the cost of income protection insurance.
In a major U-turn from last year, when half of insurers predicted the premiums for lump sum life assurance to decrease, 50% now expect rates to remain steady while 38% expect rates to increase. Not one insurer expects the cost of critical illness cover to decrease, while 29% expect to see increases. Employers can expect costs to remain steady or increase for death in service pensions with 29% of insurers and reinsurers expecting an increase and 57% expecting rates to remain on hold.
As always, insurers will be walking a fine line between maintaining market share while ensuring they remain profitable. The past few years, which have seen decreasing rates and inflationary pressures, have eroded profit margins to such an extent that it is far more likely insurers will need to focus on increasing margins.
Additionally, although a long way off, insurers are looking towards 2012 and the effect Solvency II will have on their operating models. Here, they predict that the increases in capital requirements will mean rates will have to rise in the not too distant future.
Paul White, head of risk benefits consulting at Aon Consulting, commented: “Employers and employees have had a relatively good ride recently with the cost of some of the most basic employee perks decreasing. However, this year we are seeing more consensus amongst insurers that costs are likely to increase.
“Insurance underwriters and brokers have already seen employers cutting back on these type of benefits, offering cheaper alternatives, or shifting the cost to employees. This trend is likely to continue, particularly if the much speculated ‘double-dip’ recession does come to fruition, and companies potentially look at benefit reduction as a cost-saving measure.
“Companies should make sure they take advantage of the cheaper costs whilst they persist. For the future, the picture might not be rosy; however, companies should not jump straight to cutting their benefits programme. Companies should be working with their advisors to build and evidence a culture of managing risks and taking action to control claim costs, from wellness strategies to active absence management programmes.”
London, 8 June, 2010
