Life takes a leap despite economic pressures

The boom in the UK group risk market continued last in 2023 with another record year of growth.

Swiss Re has issued its annual Group Watch report which found the level of insured individuals and benefits increased across all three product lines – death benefits, long-term disability income and critical illness. The number of in-force policies increased by 4,420, (87,376 to 91,796), while the number of people insured hit 15,314, 655 – a 6.2% increase year-on-year.

In terms of death benefits, the number of members covered under lump sum death benefit schemes increased by 579,083 (5.5%), taking the number of people covered to 11,083,680.Insured benefits under lump sum death benefit schemes increased by 12.9%, taking total insured benefits to £1,781,573,066,000. The rapid decline in dependants’ death in service pension continued with a decrease of 41.1% in in-force members. There are now just 1,314 policies in force covering 74,403 members (239,592 members at the end of 2019).

The number of members covered under Long-term disability income (LTDI) schemes increased by 201,377 (6.6%), taking the total number of people covered to 3,255,185. Insured benefits under LTDI schemes increased by 12.5%, taking total insured benefits to £124,887,714,627pa. More than 90% of all in-force LTDI policies cover fewer than 250 members, a typical benchmark for an SME.

The number of members insured in critical illness schemes increased by 164,817 (22.4%), taking the number of people covered to 901,387. Insured benefits under critical illness schemes increased by 14.2%, taking total insured benefits to £64,283,622,000.

Ron Wheatcroft, joint author of the report, said: “In the face of increasing costs for death and disability benefits, it’s extremely encouraging to see the value employers put on the provision of risk benefits to attract, retain and support their workforces.

“It was particularly pleasing to see a further 201,377 members of LTDI policies in 2023, on the basis that workplace LTDI policies not only pay a proportion of pre-disability earnings, but also bring the additional benefits to help people to remain in or return to work as and when they are able.”

In another year of high inflation in the UK, the average benefit per member for LTDI increased by 5.5% and the average lump sum death benefit increased by 7.0%. The average in-force sum assured for critical illness fell by 6.7% from £76,433 to £71,316. This was in part as one additional product provider shared data where the average sum assured was lower.

But despite clear progress, Wheatcroft says more must be done to help employers. He said there needs to be a widening of the health narrative to include the important role vocational rehabilitation plays in supporting workers and ensuring the tax system treats occupational health and vocational rehabilitation services consistently.

“This year we’ve seen calls from product providers and employee benefits consultants for the Government to reconsider the tax treatment of contributions made by members to extend LTDI benefits provided by their employer,” he added. “For the second year running, the percentage of schemes offering this facility has reduced, with the double taxation of premiums and benefits a barrier to what could otherwise be greater personal resilience.”

Wheatcroft also highlighted that excepted group life policy numbers and membership are growing much faster than registered pension arrangements.

“The trend towards using excepted group life policies (EGLPs) will continue given the potential tax liability for benefits above the limit now known as the lump sum and death benefit allowance,” he explained.

“We estimate that the cost of administering and assessing the potential periodic tax liability on discretionary trusts now stands at approximately £4m each year. This tax appears to be related more to investment gains and we hope to see this potential liability abolished on all trusts holding pure protection policies, and to simplify the administration further by abolishing the requirement for a common benefit formula to apply to all members.”

Group Watch 2024 is based on data provided by product providers within the group risk sector. Insights were gleaned from a collective of 44 individuals, comprising 18 professionals from product providers and 26 experts from employee benefit consulting firms.