Four group risk providers make a business case for introducing income protection. Kylie Harrison reports

Only a minority of employees (8 pc) are covered by income protection, to the extent that some refer to this lack of cover as the protection gap.

Four providers of the insurance, several of which have radically altered their propositions to aggressively grow the benefit, argue the business case for introducing it.

Managing the cost of absence

"The cost of staff absence to the UK economy rose to 13.4bn pounds in 2006," says Unum head of commercial marketing Wojciech Dochan. "According to the Chartered Institute of Personnel, the average days lost per employee in the UK is around eight, and costs employers around £598 per annum.

To put this in perspective, the cost of absence for a business with 1,000 employees could be 598,000 pounsd per annum, amounting to some 800 lost days - the equivalent of running 30 people short. It is, therefore, in every business's interest to put strategies in place to manage such risk.

"Group income protection (GIP) mitigates the costs of long-term sickness absence and can help with more effective rehabilitation. There is now a wide range of flexible and innovative options to suit every employer.

"Some policies provide a replacement income cover where an employer expects that its incapacitated employee(s) are likely to remain on the payroll, perhaps for many years. Other approaches allow employers to instruct the provider to pay the policy's income benefit directly to the incapacitated employee. This is often welcomed when the employee is unlikely to return to work, as it means they don't have to remain on the payroll.

"Another option is to provide the employee with an income benefit plus a lump sum, which is particularly relevant when employers expect their employee to leave service, possibly taking early retirement through ill-health, when the policy's income benefit stops.

"Insurers are also increasingly providing other services, such as vocational rehabilitation support. This involves identifying whether rehabilitation is the right answer, as well as any barriers that may be preventing a return to work; insurers can then help employers and employees overcome such barriers. In addition, Unum has developed a system that allows employers to monitor and analyse sickness absence in their organisation."

The virtues of short-term income protection

"Legal & General (L&G) instigated independent market research to review the GIP market," says L&G group protection sales director Glenn Laming. "This identified a number of issues that were restricting interest and, as a result, take-up. It helped us to develop our own product to appeal to both employers with schemes already in place, and those who do not currently provide the benefit to staff.

"A key concern was the long-term nature of the benefit. With the working population becoming increasingly mobile, traditional GIP design is not considered relevant for many employers. Our solution addresses this by providing benefit payments that are reviewed at regular intervals during the term of absence. Long-term benefit, for a period of absence over four years, continues to be available only for the most seriously incapacitated employees.

"The main aim of GIP is to return employees fit and able to do their occupation, or find alternatives when necessary. L&G works in partnership with advisers and employers to put in place clear strategies for early notification and absence management. "The results are very encouraging, with significant improvements to the average notification periods and, as a result, improved success in getting employees back into the workplace. This is particularly true in specialist areas of absence, such as stress-related conditions, where early intervention is an integral part of ensuring the absent member receives professional support when most needed."

Helping employees back to work

"We believe income protection (IP) is not just about paying benefits. It's about helping employees return to work, wherever possible," says AEGON Scottish Equitable employee benefits head of marketing Simon Bailey. "For most companies, employees are their most valuable asset with significant investment going into recruitment, training and retention. If an employee is absent, it is in the employer's interest, as well as the insurer's, to help them back to work - and we have been developing our claims management approach to do just that.

"We want to get involved early in a potential claim, giving us the chance to take proactive steps to increase the likelihood of getting the employee back to work. Most IP schemes have a deferred period - before the insurer pays benefit - of around 26 weeks. But the longer people stay off work, the more likely they are to develop secondary illnesses, such as stress and depression, which can delay or prevent a return to work.

"We ask employers to tell us when any employee has been absent for four weeks or more. We will then arrange for a nurse to visit them. This allows us to make a more direct assessment of capability, which then feeds into a detailed return-to-work plan for both the employee and the employer. We focus on capability rather than disability, recognising that every person's situation is different. During the past two years, we have recruited, selected and managed quality third-party occupational health and care specialists to help us deliver this approach. These include cognitive behavioural therapists, physiotherapists and even career restart agencies.

"By getting involved earlier, we have been able to lower the average length of absence from 22 to 14 weeks. So more employees are returning to work sooner, and IP is delivering a valuable benefit to the employer as well as the employees."

Employer benefits

"Employers often see GIP as a benefit solely for employees," says Canada Life group insurance division head of marketing Marion Ware. "However, a good proposition can help employers reduce levels of absenteeism, long-term sickness and staff turnover. Our absence management programme helps employers to monitor and manage their employee absenteeism through absence reporting and health management systems. Early warning signs can thus be recognised and acted on.

"Employers can also suffer a huge loss of earnings should an employee be diagnosed with a serious illness. In response to this, we can give employees (and their immediate family) access to specialists who can confirm diagnosis and treatment recommendations. In addition, our online business manual and telephone helpline offers assistance with operational issues in the day-to-day running of a business. By keeping employers up to date with employment, health & safety and wellbeing issues, they are able to comply with their duty of care, potentially reducing the likelihood of stress claims.

"Our employee assistance programme combats employee absenteeism by helping employees (and their immediate family) with stress or difficult family circumstances. A round-the-clock telephone support service and face-to-face counselling ensure employees are happy and reduce stress-related health problems.

"Directly or indirectly, these services provide clear benefit and value to the employer. Proactive GIP services are effective risk management tools that can help to stabilise premiums over time, and reduce absence — thereby positively affecting productivity and the bottom line.

"Elsewhere, the imminent government welfare reforms are bringing the value of IP products to the fore of the public agenda: with fewer people likely to qualify for employment support allowance, and benefit amounts likely to decrease, we expect the GIP market to increase in the coming months. We have introduced a range of services that work with our GIP to increase the value of each pound spent on benefits."