This is surprising as there is the danger of uninsured risk on the one hand and the overpayment of premiums on the other. There are also the issues of what risks should be insured and to what extent the employer can share risk and - it is to be hoped - profit with the insurer. Any risk assessment should also consider whether risks are being covered in the most appropriate and cost-effective part of the insurance market.
Trustees of pension and life assurance schemes are faced with the same issues but seldom consider the application of risk management principles when buying or renewing death-in-service benefit cover.
Fatal accidents can distort death-in-service claim statistics and lead to higher premiums. Even worse, a serious catastrophe could lead to insured limits being exceeded.
According to the Royal Society for the Prevention of Accidents (RoSPA), every year in the UK there are 1,000 deaths in work-related road crashes and 350 deaths of workers and members of the public due to reportable accidents at work, so the consequences should not be ignored. Added to these figures are deaths caused by non work-related accidents whether in the home or while at leisure.
The creative use of group personal accident and catastrophe cover can not only reduce death-in-service insurance premiums but can also help mitigate an employer's liability and public liability insurance claims. By conducting a detailed assessment it is possible to move towards a bespoke rather than a one-size-fits-all solution.
We have been working on an improved method of managing risk for clients which gives them the tools to make informed decisions. This approach incorporates:
§ Assessing the risks inherent in a business
§ Dividing risk between standard mortality and catastrophe
§ Considering how much, if any risk, should be shared
§ Identifying the relevant insurance markets for the different risk elements
§ Obtaining the most competitive premium rates
In a recent case, a client's annual premium was reduced by 40% by simply rearranging the risk markets being used.
The business in question had a high perceived risk due to the heavy nature of the industry and the density of population, and the insurer required a 45% increase in premium to raise the maximum level of catastrophe cover from £1 million to £50 million.
The trustees were not comfortable or able to carry the risk of multiple accidental death when the exposure on any one location was between £25 and £50 million.
Using analysis models to assess exposure, accurate conclusions could be drawn that informed the selection of appropriate insurances. By extending the terms of the personal accident policy to include catastrophe cover for the main risks, rather than a 45% increase in premium for death by any cause, the organisation paid the equivalent of an additional 5% in premium.
It is by applying these risk management techniques that employers can ensure they have full protection for all employees, understand the risks being taken, avoid unwelcome premium rate increases following a catastrophe, and finally have the opportunity of a profit share if desired.
In fragile economic conditions this approach can provide employers and trustees with peace of mind as well as a cost saving to benefit the bottom line.
Terry Gostelow is a risk and reward consultant at Heath Lambert Consulting
