· 5 min read · Features

Employee benefits: Group risk cover - Double trouble


Three million employees could be paying for life insurance, unaware they are already covered by their employer's group risk scheme. Is this another case of communication failure?

As another financial year draws imminently to a close, here is a sobering thought: the insurance industry is laughing all the way to the bank. Your finance director may not be, though, for it seems a strange dynamic is happening. Despite the tough economic conditions, it appears both your company and many of your employees are paying for exactly the same insurance policy. It is double income the insurance providers welcome, but it is a situation that cannot make financial sense either for staff or the companies they work for.

This finding recently came to light when Aon Consulting discovered three million employees (10% of the working population) did not realise their employer provides them with life insurance. With the Association of British Insurers also finding half of households privately pay for their own life insurance the chances are that many of these three million are duplicating what their employer spends on them.

The finding asks some fundamental questions about group risk as a benefit: why are companies failing to explain to staff that they offer it and, perhaps more importantly, if households are prepared to buy it for themselves anyway, is it a benefit companies even need to be offering?

Colin Micklewright, head of group income protection business development at Canada Life Group Insurance, says bluntly: "In my 25 years in the insurance industry neither providers nor employers have ever done an impressive job of communicating risk benefits. Employers traditionally felt obliged to provide group risk benefits because their competitors were doing it and they were reluctant to communicate group income support to staff for fear they might claim."

The idea that companies pay for a benefit but avoid communicating it for fear of having to pay out on it may seem a little bit odd, with some suggesting that, if this is the case, they should scrap offering it altogether. Darren Laverty, director at employee benefits adviser Secondsight, says he has "never come across an employer that did not want staff to appreciate the benefits" but there are many reasons why staff might not appreciate employer-provided group risk. Failure to communicate it is just one. Many staff may already receive it through their mortgages, while others will also know any insurance cover will cease to exist if they leave an organisation offering the scheme.

But, according to commentators, these are not good enough reasons to justify completely withdrawing the benefit. Paul White, head of risk benefits at Aon Consulting, says: "Employers have a duty of care to their staff and, as the Government shifts more welfare responsibilities onto employers, we will see increased pressure on organisations to provide risk benefits." He adds: "Risk benefits are actually good value for employers because group income protection can pay for staff salaries while they are on long-term sickness absence, increasing the chance they will return to work when they recover."

Experts agree it would not be constructive for those offering group risk to do away with it. Graham Clark, director of group risk at Bupa, believes not only will group risk benefits be attractive to job-seeking employees but income protection will also help reduce long-term staff absence, due to the rehabilitation and occupational health programmes for long-term incapacitated employees that accompany it.

"We can show how group income protection benefits all parties," he says. "Absent employees get better opportunities to return to work earlier than they would have done in many cases. Employers should see reductions in long-term absences and providers can keep their costs under control - helping them keep premiums competitive - ultimately benefiting employers again."

Peter Smith, managing director of Benefex Financial Solutions, says although it is difficult to measure staff engagement and productivity against group risk benefits, "employers should be able to get capital out of all their benefits. To encourage staff to appreciate group risk, companies have to invest money communicating it."

Bupa's Clark explains this could be done at induction meetings, encouraging them to select nominees to whom life assurance should be paid in the event of their death. "This will get people thinking about it," he says. Laverty adds: "It's just a question of making staff understand the real value of their risk benefits. Our anecdotal research proves that if employees understand group risk they are glad it is provided."

Laverty advocates continuous communication of group risk to staff not only when they start but throughout their career and Benefex's Smith suggests total reward statements are a good way of showing staff the value of the perk. To give staff the responsibility to decide their own level of cover, employers can also offer it as a flexible benefit or a voluntary benefit.

Law firm Denton Wilde offers critical illness and life assurance as a core benefit for all staff but they can use the firm's flex scheme to increase or decrease the cover they receive. Dawn Batchelor, its systems and benefits administrator, says: "Before we put the benefits on the flex scheme, we felt some staff had overlooked risk benefits. But the scheme reiterated the message. We communicate it under the headline 'Security' so employees understand exactly what the benefits will give them."

IPC Media will launch its own voluntary group income protection scheme this month. Staff will pay a monthly premium through a salary-sacrifice arrangement and save tax and national insurance through this method.

The media firm launched a large-scale communications initiative in November 2008 using posters, emails and meetings with managers about what the benefits would mean for their teams. Provider Personal Group held one-to-one sessions with interested staff members about how income protection could affect them. As a result take-up of the scheme stands at 17%. IPC's reward manager, Ashley Bestwick, believes the secret of the scheme's success is staff understanding. "Offering it on a voluntary basis gets people thinking about the benefit they are choosing," he explains. "This makes those who choose it really value it."

Yes, three million staff are ignorant about life assurance but employers should not see this as damning news signalling the end of an established employee benefit. Instead they need to rethink their strategy to communicate the group risk benefits more effectively so staff fully understand the value.


Life assurance/life insurance - The terms are used interchangeably and sometimes referred to as death-in-service benefit. In the event of an employee's death while employed by an organisation offering this benefit, a payout is given to individuals nominated by the employee prior to their death. Depending on the scheme this sum can be between one and eight times the employee's salary. Some employers provide all employees with core cover of two times salary with the option to increase this using a flexible benefits arrangement. Sometimes life assurance is linked to a pension scheme and can be awarded to employees' dependants as a spouse's pension.

Accident insurance - In the event of an accident resulting in a serious injury, dismemberment or death of an employee, a lump sum will be paid out to them or chosen recipients.

Critical illness - Not to be mistaken for income protection or accident insurance. A lump sum will be paid out to employees should they be diagnosed with an illness considered critical or terminal. The definition of 'critical' varies with different insurers and employers but always involves cancer, stroke or heart attack.

Income protection - If an employee has a long-term illness (more than 28 weeks), this insures their salary is paid until they are able to return to work.


The Government plans to get one million people off incapacity benefit by 2012 and is in the final stages of completing its Welfare Reform Bill. The laws will mean people who have been off work for long periods of time but who are deemed able to work at some level - including those on incapacity benefit - will be encouraged to actively seek work in order to receive their state benefits. In essence, this means incapacity benefits will be replaced by Jobseekers Allowance except for people who are severely disabled. Currently state incapacity benefit for disabled employees or those on long-term sick leave is between £70 and £80 per week for each employee and this is expected to decrease to reduce the Government's annual welfare bill, which stands at £20 billion. Research from Canada Life Group Insurance shows only 4% of employees think they could survive on less than £100 per week, so the onus will increasingly fall on employers to subsidise staff who are ill as part of their duty of care.