Pulling punches to avoid a knock-out blow

As the name suggests, the focus of group risk benefits is to provide coverage for a group rather than meeting a specific individual’s precise needs.

Further, with the average South African income earner holding cover for less than 40% of their needs in the event of their death, the important role group risk cover plays in providing at least a basic level of financial protection is undeniable.

Areas for improvement

Yet, the one-size-fits-all approach of group risk cover often leaves individual employees substantially underinsured. The truth is, the industry can do better. A focus on the individual within the group is possible and is necessary.

The problem is that, for the most part, group cover uses a flat multiple salary model, which is usually between one and three times an employees’ annual salary. At first glance, it seems as if every employee is receiving exactly the same level of coverage.

But this couldn’t be further from the truth; the cover allocations could leave younger employees significantly more underinsured while employees closer to retirement, with fewer pay cheques to protect, may be over insured, or have far more of their needs covered, relative to the majority of the (younger) workforce.

Coverage needs to align more closely to the underlying financial need. By using an approach that calculates each member’s total value of future pay cheques and covering a consistent percentage of this future income for all employees, it is possible to achieve a fairer split of the groups cover. In doing so, it would allow the group to also buy more cover, for the same premium.

Claims assessment

In times of economic downturn, employees tend to claim more from group disability cover. This creates uncertainty even for employees with legitimate medical impairments.

By doing away with subjective occupation-based assessments that rely solely on income loss, insurers can introduce claim certainty while managing risk.

Following the individual life market’s lead, it is possible to assess disability claims on clinical criteria for a list of defined conditions. A more certain, objective claims assessment also removes the need for in-claim reassessment of permanent disability claims.

Insurance of this sort gives certainty to the employee while sparing employers and advisers the administrative burden that comes with these claims.

Flexibility and choice

A focus on the individual within the group requires a disruptive insurer that understands the same pay-out structure may not be suited for every disability or death claim. Employees cannot know in advance whether a lump-sum or income would meet their new financial circumstance or medical prognosis at the time of claiming. Progressive insurers give the employee or beneficiaries an option to choose between a recurring pay-out or a lump-sum when they claim. This guarantees that they can choose the pay-out that delivers the best value.

Group risk cover also makes it possible for individual members who might otherwise struggle to secure cover to benefit from the scheme’s risk rating. But the cover is usually well below their actual need.

Insurers should make it easier for employees to buy more cover if they need it, without underwriting. A needs-matched approach offers individuals the flexibility to buy up to double their cover amount – up to the free cover limit – without individual underwriting. When employees change jobs, they forfeit their cover and years of group cover premiums paid. Forward-thinking insurers should allow members to take their policies with them when they leave, affordably and without underwriting.

Winds of change

The industry needs insurers who focus on the individual within the bigger group. Change is needed, and a needs-matched philosophy positions a good insurer to change the group risk market by better meeting people’s needs.

 

  • Schalk Malan is the CEO of BrightRock.
  • This article was first published on 01 November 2018 by FA News (page 70).
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