PRESENTER: With the rise of obesity and stress related illness, our national health is worsening. And this is not only bad for society, it’s bad for business. Absenteeism has an immediate impact on productivity, but genera poor health among employees also takes its toll over the long term. In this Akademia unit, we’re going to be looking in more detail at the issue. On the panel are Karl Hewstone, Head of IFA Health Sales; Ari Zadikov, Head of Technical Marketing; and Sally Burrows, Director of Legal and Business Support – all at Vitality. There are three key learning outcomes: the business protection needs of SMEs; the importance of employee wellness for a business; and the benefits of a group healthcare plan.
It’s often said that small to medium-sized enterprises are the backbone of UK PLC. As we’ll see, 99% of all UK firms are in fact SMEs, and they employ 60% of the UK workforce. This means that your client bank will almost certainly consist of directors or senior management of SMEs, all of whom have a variety of protection based needs that you can solve for them. To understand more about SMEs, their needs and where they seek advice, let me hand you over to Karl Hewstone.
KARL HEWSTONE: It’s often said that SMEs are the backbone of UK PLC. And if you look at the statistics it’s easy to see why. There’s round about five and a half million enterprises in the UK, of which over a million of those are SMEs, which we would define as between 100 to 249 employees. And you can see that those SMEs are contributing £1.6 trillion to the UK economy every single year. And they make up 60% of all employees in the UK.
It’s often said that this is very biased towards the South East, and if you look on the next slide you can see that whilst it is true there are more SMEs in London and the South East, they’re actually distributed throughout the UK, and therefore the reality is that throughout the whole of your client bank there are likely to be directors or owners of small to medium enterprises.
So what do we know about those businesses? Well generally they go through four different cycles, and at each cycle we tend to see different protection needs come out. So if we look at the start-up phase, the likelihood is the director is probably the business. If he or she is sick then that business is going to fail. So the focus is very much on survival for that business, and keeping that individual director healthy. As the business starts to grow, they need to start thinking of funding, and then the recruitment of their employees. And at that stage it’s critical they get the right employees to help drive and build that business. So attracting the best staff stars to become really important. As we get to the maturity stage, the business now is starting to optimise their business. Starting to make sure that their assets are working hard and that they tend to find that many of their processes are dependent on a few key employees.
So retaining those staff is really important, and protecting them is also very important. And then finally we get to that stage where the business owner is looking to exit and they want to sell the business. And at that stage they’re very focused on maximising the productivity of every single they have. And of course their biggest asset is their people. So they want to be making sure that those individuals are productive and achieving the maximum return they can for that company. So they can maximise the profits and thereby obviously maximise the opportunity to sell that business.
So what do we know about SMEs? Well one thing we do know is that they’re very used to protecting their business already. Many of them will have liability insurance, potentially professional liability insurance, or if they own vehicles they’ll have insurance for those vehicles, or the same for property. In fact many of them already protect the health of their employees; around about 10% of all companies already have private medical insurance. So not only have you got SMEs in your client bank, they probably already have health insurance already.
So what do we know about the business owners? Well if we look on the next slide it will be no surprise that many of these business owners wear lots of different hats. They’re the marketing director. They might also be the finance director. They might also be responsible for human resources, and maybe putting the bins out on a Thursday, because they have to do so much in a small business. That means they really value professional advice.
Where do they get that professional advice from? Well if you look at individual customers, so retail customers buying for themselves, you’ll find that around 40% of those customers would buy advice from a broker. But if you look at SMEs you’ll find that almost doubles and that almost 80% of all SME customers will value and go to a broker for their advice, and therefore you as their adviser is well placed to help and assist them.
PRESENTER: So what we can see is the directors themselves have protection needs, and as employers they need to ensure that they have the right employee benefits to attract and retain the best staff, and maximise productivity. Business protection is a commonly unsold area of protection, but can provide essential cover to ensure the continuity of a business following the death or illness of a director or key employee. It can also provide attractive tax benefits, allowing directors to reduce the cost of providing cover. To learn more about this area of financial protection, let me hand you over to Sally Burrows.
SALLY BURROW: As Jenny said, business protection is a commonly undersold product, but at its heart it’s just protection. I think there are three main reasons why advisers shy away from the product, and they are understanding the need, the expense and complexity. And we’ll come onto those in the next few slides to talk about it in a bit more detail, but I think once it’s understood that it’s really just protection and that those factors can be overcome, it’s a really great opportunity for an adviser’s business.
The first of these reasons is understanding the need. As you can see from the slide on screen, as firms grow in size, the risk of an employee becoming seriously ill or dying before the age of retirement increases. So typically a firm of four employees aged 40 would have a 35% chance of someone dying before retirement. And obviously this is higher suffering serious illness. We have a mortality calculator which demonstrates this, and which advisers can use to demonstrate that need to the client.
The second criticism of business protection is that it’s too complicated. There are a number of terms and jargon that are used in the industry, but actually there are probably more customer friendly terms that we could use. Relevant life cover for instance is a term straight out of the pension’s legislation, and not something that a marketing team would come up with, but it really is really family protection. So it’s sort of a hybrid between personal protection and business protection. It protects an employee’s family or beneficiaries that they choose to leave the benefit to, but it happens to be paid for by the employer.
Similarly loan protection, every business has liabilities, for instance directors’ loans accounts, which if a director were to die would become immediately repayable. The problem is that capital is being used or tied up in the business. And so at a time when a business is most vulnerable, when the director’s just died, they’ve got to also find the money to repay those loans. So it’s about getting money to the business at the right time to help them out when they most need it.
Similarly, key person cover is about protecting profits. It could be called profit cover. It’s around finding that key individual that is most key to creating a company’s profits, be it a director, a sales director, key designer, and covering their contribution to the profits so that if something were to happen to them the business could continue. Could continue to pay salaries, could pay recruitment fees to replace that person, to tide them over until they were able to replace them.
And lastly shareholder protection or partnership protection, now really this is just about ownership. It could be a limited liability partnership. It could be a limited company or a partnership. It’s about keeping the ownership with the business owners, no matter how it’s structured. So if something were to happen to one of the business owners, again the policy would pay out giving money to the remaining owners to buy out that individual’s share from their family, let’s say, and keeping the business afloat when it needs it most.
Another reason why advisers deem business protection complex is the paperwork that’s associated with it; be it trusts or cross-option agreements. It’s deemed very complex. It doesn’t need to be. Most insurers will have face-to-face account managers who can help you with it, as well as business protection specialists to take you through the exact stages once the need has been established with the adviser.
Most insurers have some sort of process to assist with the completion of paperwork. As you can see on the slide, at Vitality we have an online trust hub, which incorporates a trust decider to help you understand which forms to use, as well as prepopulating some of the information from the application form so that there’s a limited amount of extra spaces to complete.
Lastly, business protection is often not sold due to the expense, or it being deemed an unnecessary add-on. But actually lots of businesses pay for cover such as flood protection or fire cover, which is actually less likely to occur than the death or serious illness of a key person. There are other inbuilt cost mitigations in some of the products as well, such as relevant life policy which has tax advantages. And insurers such as Vitality will offer members discounts, upfront discounts and cashback according to how well they participate in health and rewards programmes, and invest in their own wellness.
So hopefully we’ve demonstrated that once you convince the customer of the need, the other complexities can be overcome with support from the insurer, business protection specialist and account managers. There really is no better time to talk about business protection. With the majority of companies having fiscal year ends in December and March, it’s a perfect time to talk to them about their yearend tax planning and arrangements for the coming year.
PRESENTER: Business protection affords valuable protection for SMEs; however, it’s in everyone’s interest to keep well. Increasingly, the Government is holding employers more and more accountable for the health of their staff, and at the same time more and more employers are understanding the benefit of a health workforce. Whether this is attracting talent or improving productivity, employee benefits that encourage wellness can have a significant business impact. Over the last five years Vitality have conducted Britain’s Healthiest Workplace – last year over 35,000 employees took part in the programme.
So, to really understand the impact on the employer of employee wellness, I have Ari Zadikov to share some key insights.
ARI ZADIKOV: Britain’s Healthiest Workplace makes use of the Vitality age calculation. Effectively what Vitality age does is provide the employee with a health risk-adjusted age considering all their health and lifestyle choices. In simple terms let’s assume I was 36 years old and my Vitality age was 40, that would suggest that I had lost four years due to my health and lifestyle choices. The next slide actually shows some of the more important results. As you can see, healthy employees are actually sleeping better. Healthy employees are actually shown to be less stressed at work. And finally healthy employees are actually more engaged during the worktime. What this translates to is we find that healthy employees on the whole are far more productive than unhealthy employees.
Now, if we look at a summary of all the findings from Britain’s Healthiest Workplace, we could take them into the following three graphs. You can see in this slide the first graph actually summarises the point made in the previous graph comparing unhealthy employees to healthy employees and how productive they are. The second graph actually shows that an improvement in employees’ health actually results in improved productivity, supporting the idea for employers to actually engage their employees in a healthier lifestyle. And finally the third graph actually compares health employers to unhealthy employers. And we find that amongst the healthiest employers, employees are approximately six days more productive compared to unhealthy employees.
So the challenges for smaller employers are actually no different to those for large employers. As you can see in this graph, small employers exhibit the same health risk factors that large employers exhibit; however, the difference being within larger groups is that there’s far more investment into the health and wellbeing of its employees. And as a result employees within larger groups engage far more in their health and wellbeing.
We could summarise the findings from Britain’s Healthiest Workplace into three key conclusions. Firstly, healthy employees are more productive than non-healthy employees. Secondly, the impact of engaging in employee wellness is actually far more immediate than one would think, and supports the idea for employer groups to actually encourage the health and wellbeing of its employees. And lastly small employer groups face the same health challenges that large employer groups do; however, the difference being that the impacts of ill health are far more impactful on a smaller employer than a larger employer, hence the need to engage in employees’ health and wellness.
PRESENTER: So it’s clear that employers should really care about employee wellness. The productive day lost due to ill health can really add up. At an average of 9.8% of their wage bill, that represents significant lost profit. So what can SMEs do about this? Joining me now in the studio to discuss is Karl Hewstone and Ari Zadikov.
Karl, we’ve seen that SMEs really feel the impact of reduced employee productivity, especially compared to corporate, so how could a group healthcare plan help?
KARL HEWSTONE: At its most basic level what a group healthcare plan is doing is helping employees get back to work quickly. And it does that by providing access to fast treatment and fast diagnosis. What you also find is insurers now are increasingly providing access to primary care. So for example the Vitality GP service that we offer provides a Skype-based GP service. But that provides convenience for the employee. But it also means that they don’t have to take time off work, which is obviously good for the employer. But as we’ve seen previously it’s much more beneficial if we can stop the employee being ill in the first place, which is why a lot of insurers increasingly are focusing more now on prevention than the cure itself, because it has a massive impact on productivity.
ARI ZADIKOV: Yes, to add to what Karl is saying, actually, through the findings from Britain’s Healthiest Workplace, not only are employees themselves healthier and enjoy the benefits of a healthier lifestyle, but actually the benefits for an employer actually seen directly through increased productivity. And this is not only the case in the UK. I speak from Vitality’s partnership with insurers across the globe, and we’re now covering 17 countries and over six million customers worldwide. And I think even more interesting is a recent pilot conducted by the NHS, which covers a very similar programme structure to that of Vitality, incentivising people to actually get healthier.
PRESENTER: And, Karl, can employers actually encourage employees to make healthy choices through a healthcare plan?
KARL HEWSTONE: Absolutely, I mean if you look at what the Government are currently doing. They’re increasingly holding the employer account for driving employee engagement within their workplace – so very much that is a significant area of focus. And I think it’s not just about encouraging people to make the right choices, and make it easier for them to do so; it’s about providing the rewards for changing that behaviour through using behavioural economics as the trigger to do that. So I’m sure you’re familiar with how many steps you should walk a day, and how many pieces of fruit and vegetables we should all eat a day. But the reality is we don’t do those things, even though we know we should. However, when you provide a benefit or reward people start to change their behaviour.
PRESENTER: Now Ari, Karl mentioned behavioural economics, what exactly is this and why is it important?
ARI ZADIKOV: Well behavioural economics is a relatively new kind of stream of scientific research and findings. But it’s actually extremely important in what we do, and has an extreme impact in everything that we do in fact. And it takes the basic premise of the fact that people are actually not rational. We make, we have emotions, we don’t make rational decisions, which is in contrast to traditional economics. And I think by way of an example the best way to actually demonstrate. So if you give a child a ball, he’s happy. But if you give a child two balls and then take one away, he’s unhappy. Now rationally they’re the same thing, he’s got a ball at the end of the scenario, but ultimately you can see there’s extreme differences in how the child actually reacts in those different situations. And this is even exacerbated within healthcare and the way we behave and engage with our health, and how we treat our health and how we perceive our health. And it’s very much the foundation of what we try to develop within the Vitality programme ourselves.
PRESENTER: Now, Karl, despite making healthy choices, people are going to end up becoming ill or having accidents, that sort of thing. So does private healthcare actually replace things like the NHS in these sort of situations?
KARL HEWSTONE: Private medical insurance is not looking to replace the NHS; it’s merely looking to complement the NHS. So a private medical insurance product is effectively covering acute care. So that’s something from which you’re going to recover from, it’s not a long-term condition. So for example maybe you’ve had a heart attack which obviously we can put you back to your former health, or maybe you’ve broken your knee and we can replace or repair the muscle, the cartilage to your knee, and recover you back so you can continue your running. And private medical insurance is designed to deal with acute conditions. What is doesn’t do is cover chronic conditions. These are long-term conditions from which you’re never going to recover, for which private medical insurance can’t really provide any additional support, and therefore the NHS would step in and support in those situations.
The only example would be for example cancer, where you’ll find increasingly private medical insurance companies are offering more and more cover when it relates to cancer treatment, to ensure customers are treated quickly and with the best appropriate drugs that are available in the marketplace.
PRESENTER: Now, I imagine a lot of employees couldn’t afford to or wouldn’t want to cover all their employees, so does this limit the opportunity to recommend cover?
KARL HEWSTONE: No, not at all. I mean what you’ll find is that in many schemes they may well have different levels of cover for different employees; in fact all insurance products these days are very modular in nature. So you’ll find that different companies will allow you to change different benefits to achieve not only the needs that that company have, but also the pricing point, the budget that they can afford. And as I say it’s often the case that the directors might be on one level of cover, and other employees might be on a different level of cover, or maybe it’s only offered to certain company, certain employees based on years’ service or something like that, so certainly very flexible allowing you to adapt it to suit the customer’s needs.
PRESENTER: Now, Ari, I think one thing that a lot of viewers will be wondering is how can employers actually measure the success of this, how can they make sure that their investment in private healthcare was actually worth it?
ARI ZADIKOV: Yeah, so I’ve spoken at length about the impact on productivity and there’s a lot of science and lots of research that supports this. But as you say it’s sometimes difficult for an employer to see that directly. So we actually create products and certain benefits that actually unlock even more additional benefit for employers. So I’ve spoken for the individual, what they stand to benefit from engaging in their PMI, but specifically from Vitality’s perspective, we have additional benefit for the employer. So one such benefit is called the employer cashback, where an employer will actually receive an additional cashback based on the health engagement of their employees. So again employees are incentivised to engage in their health, and employers are actually further incentivised to encourage this engagement amongst their employees in the form of a cashback to themselves.
PRESENTER: And, Karl, in your session you talked about attracting and retaining the best staff, how can a group healthcare plan help in this?
KARL HEWSTONE: So I think it’s really important that when you’re particularly in growing businesses that they’re likely to be trying to recruit staff, either from a large corporate from down the road, and that individual probably already has private medical insurance. Alternatively, you’re trying to poach them from a competitor who maybe they don’t have private medical insurance and you’re trying to put a benefit in place which they don’t currently have. At the end of the day, group private medical insurance is the second most valued benefit after a pension, and it’s easy to understand why. You’re giving employees fast access to treatment, fast access to diagnosis, so it’s a really highly valued benefit, which employees really appreciate. So very much so, and we’re firmly of the view that a good quality private medical insurance that’s providing benefits for everyone, including those that are not claiming, really helps you attract and then retain the highest quality staff.
ARI ZADIKOV: To add to what Karl’s actually speaking about, we found from our research that approximately 20% of employees or members actually claim from their PMI when they’re sick. The beauty of actually encouraging healthy behaviour, and incentivising this behaviour is that now, that not only the 20% can see benefit from their PMI, but actually the 20% and the other 80%, actually everyone can receive benefit today from engaging in their health through, whether it be, whatever the reward may be. And of course the impact for the employer, we’ve spoken about, and of course down the line through better health is ultimately what we’re trying to do here.
PRESENTER: So, Karl, in summary then, what would you say are the benefits to an employer having group healthcare cover?
KARL HEWSTONE: So I think first of all we’ve got a really valued benefit that employees receive great value from. They’re getting access as we’ve talked about to fast treatment, fast diagnosis. Now that’s good for the employer, because individuals are sick clearly they return to work quickly. Secondly, if you’ve coupled that together with an integrated wellness programme, hopefully you can stop them being sick in the first place, and if they are again you can return them back to work. And it’s a really attractive benefit. So we’ve talked about you can attract and retain the really best staff. But of course it’s also good for the broker, because the intermediary who’s introduced that particular sale to the employer is able to talk to the employees about the other services that they may well provide, whether that’s health or wealth or pensions or protection advice.
So, as you can see, it’s good for the employees because they’re hopefully healthier. It’s good for the employer because they can have increased productivity. And it’s great for the broker as well. So it really is a win-win for everybody.
ARI ZADIKOV: Yes, I mean ultimately we like to term this as shared value insurance. It’s almost the next stage in insurance, in that you’re not in a world where you’re providing almost a grudge purchase, but you’re actually creating value between an employer, between an adviser and the insurer ourselves. And everyone’s participating in this shared value insurance, which ultimately benefits society as a whole.
PRESENTER: Gentlemen, thank you. Well, before we end this Akademia session, let’s go back to Karl just one more time to cover some frequently asked questions.
KARL HEWSTONE: So let me answer some of the common questions that we get from both employers and from brokers.
So firstly who’s allowed to join a group healthcare scheme? Generally speaking, it’s employees of a company. And different insurers will define employee to suit their own rules. So for example it may be on the PAYE and do over 16 hours a week. Different insurers do have different roles so it’s important to check. Some insurers will allow majority shareholders or maybe directors that are not on PAYE to join the scheme as well.
Can children be added to a company scheme? Subject to the employer agreeing, the employee can add children. Different insurers again will have rule as to when they will take those children off, so it may be at 21 or 24. Or some insurers like Vitality will actually leave the children on the scheme until they’re asked to remove them.
Who can pay the premium? Well again generally speaking the insurance company will expect the employer to be paying the whole premium for the employee. None of that can be recouped back. But it may well be that they allow the employee to pay for perhaps their dependents and their children for example.
What’s the tax implication for both the employer and the employee? Well the employer’s premium can be offset against corporate tax liability, and the employee’s premium becomes a benefit in kind or a P11D benefit, which therefore is taxable.
What happens when an employee leave the scheme? Well generally speaking insurers will allow that individual to leave their company scheme and take their cover to a new individual scheme without fresh underwriting. The rules do vary between insurers as to the benefits that they will allow to continue, so it is important that you check that point with the insurer.
How does a member make a claim under a group healthcare plan? Well it’s basically exactly the same as they would on an individual healthcare plan. They will go and see their NHS GP, or some insurers offer access to video-based GP services like with Vitality, with the Vitality GP service. Once they’ve seen the GP, they will be referred for further treatment. At which point they ring up the insurance company to seek authorisation.
Should an employee claim, how the bills are paid and do they have to pay anything themselves? In the vast majority of cases, the bill is actually paid directly by the insurance company to the healthcare provider. On occasions, for example where there is an excess, the excess might be paid to the provider, and the rest of the bill would be paid by the insurance company.
One thing to look out for, there are situations, however, where the insurance company may not pay the consultant or the anaesthetist bill in full because the consultant or the anaesthetist chooses to charge more than the insurance company is prepared to pay. That’s often called a shortfall. You can pay extra to protect yourselves against that, or companies such as Vitality will actually pay that bill in full every time.
Can a scheme move from one insurer to another? And the simple answer is yes. Subject to a declaration completed by the group secretary, the insurance company will review and confirm whether they’re prepared to accept that scheme. And then very simply it will move from one insurer with all the underwriting details and move to another insurer. Simply all that would be required is the application with the declaration that I’ve talked about, with a copy of the insurance certificates from the old insurance company sent to the new insurance company, and they will set up a plan on exactly the same basis as you’ve already got in place.
PRESENTER: In order to consider the viewing of this video as structured learning, you must complete the reflective statement to demonstrate what you’ve learned and its relevance to you. By the end of this session, you’ll be able to understand and describe the protection needs of SMEs, the importance of employee wellness for a business, and the benefits of a group healthcare plan. Please complete the reflective statement to validate your CPD.