Many companies have reduced working capacity or shut down operations completely due to the COVID-19 breakout. This has consequences for employee benefits’ schemes and we have compiled some of the FAQs we are receiving from our clients.
Q: Will group life assurance (GLA) claims be affected by the Coronavirus pandemic?
A: There are no general exclusions on GLA policies. However, policy owners should be aware of any clauses on the policy that may be triggered due to the current pandemic.
One such clause would be a catastrophe limitation, where the insurer has set a maximum limit in the level of claims that it will pay which result from a single originating cause.
Another is a limitation on overseas travel set by the insurer and would be linked to guidance from the Foreign & Commonwealth Office (FCO). Due to the current restrictions we do not believe this later clause would be an issue for the majority of policy holders.
Should you require additional guidance on these points your Lockton Benefits Consultant would be happy to assist.
Q: Will group income protection (GIP) and group critical illness (GCI) claims be affected by COVID -19?
A: There are no exclusions on GIP policies and claims will continue to be assessed based on the existing terms and conditions of the policy.
For GCI claims, Covid-19 would not qualify as a critical illness but complications arising from it may result in a classified critical illness. Such claims would be assessed as per the existing terms and conditions of the policy.
Q: If employers institute a salary reduction for their employees take (even if this is £0) because of COVID-19, can their group protection benefits continue to be covered on their pre-reduction salary?
A: Insurers have noted that this is a position a large number of employers will be forced into and have confirmed in return that benefits can be kept at their pre-reduction limits as long as data received is based on pre-reduction salary levels and premiums remain paid based on the full benefit entitlement.
Some insurers have stated that this position will be reviewed after an initial 3 month period, while others have advised that they will have additional reporting requirements.
Q: If employees are furloughed because of COVID-19 how are their group protection benefits affected?
A: As the underlying principle of a furlough period is that employees are retained but not utilised, their existing employment terms and benefits will continue largely unchanged and in principle this can extend to employee group risk and healthcare insurances.
The response from the market so far has been that as long as premiums continue to be paid and employees remain employed, cover can be provided for a period of up to 12 months, at their full salary levels.
Where employees have been placed on furlough, or hours adjusted and salaries reduced, group life and group critical illness sums assured can be based on pre-reduction salaries – even if they have been reduced to zero.
For group income protection, the majority of insurers have advised that claims can be assessed on pre-reduction salaries in line with the insurer’s normal terms and conditions. However, a minority have advised a different approach where the insurer may impose a change in salary definition.
Q: How will volunteering affect a member’s employee benefits?
A: Insurers have responded pragmatically to the government’s call for NHS volunteers. Insurers have stated that eligible employees who are volunteering will continue to be covered under all policies as normal, providing the cover remains in place and premiums continue to be paid.
Some insurers have suggested that due to the short term nature of such volunteering / alternative employment they have set a time limit on the cover. However, given the fluid nature of the current situation, those same insurers have confirmed that this will continue to be reviewed.
Q: If an employee is on furlough, will they still be considered actively at work?
A: The market appears to favour an approach whereby a member is AAW if it were not for the circumstances of self-isolation or furlough they would have been capable of working their normal occupation and it would not have been against medical advice.
Lockton recommends to ensure continuation of cover:
- Maintain premium payments - if economic circumstances create difficulties, contact your Lockton consultant in order that we can discuss payment and cover options with your provider at the earliest opportunity
- Continue to provide membership data on the employment basis prior to any COVID-19 amendments to ensure you retain full cover for your employees
- Advise material changes in business activity (perhaps resulting from a firm providing COVID-19 support activities) as soon as possible to ensure
- Change in contractual terms for employees (including the use of furlough) should be discussed with your Lockton Benefits consultant at the earliest opportunity who will advise of any specific insurer requirements.
Q: Can I still access treatment through my private health insurance policy?
A: following the agreement between the NHS and private medical providers, all available capacity has been reserved for the NHS to allow it to deliver urgent care. This will result in delays or rescheduling for those requiring non urgent in-patient care or face to face consolations.
Q: Can I use private health insurance to receive testing faster than through the NHS?
A: You would not be able to use your health insurance for testing at this time. The Government has given Public Health England (PHE) authority to carry COVID-19 testing with samples being analysed at a limited network of twelve Designated PHE regional laboratories. The testing from these laboratories is strictly controlled and reports on to the central laboratory at PHE Colindale which acts as the Respiratory Virus Unit (RVU) Reference Laboratory. This test is currently only available on the NHS.
Q: I have an experience rated medical scheme due for renewal, what should I do?
A: Lockton has engaged with senior management and lead underwriters at all of the largest insurers and it is fair to say there is currently a lack of clarity on approach and differing tactics beginning to evolve. To date, insurers have rightly focussed on promoting their various support services, helplines and digital solutions to help scheme members cope with immediate challenges. However, with more firms having to consider the financial impact of the virus on their business, great care needs to be taken when setting appropriate and sustainable levels of premium and benefit in kind rates.
Our consultants will be working with all of our clients to support forthcoming renewals and our analytical team are on hand to provide modelling to help inform decision making and influence underwriters through the provision of scenario testing various different levels of claims disruption.
It is a fast evolving situation and every renewal will have its own unique circumstances but there are some basic measures we recommend for consideration:
- For full insurance contracts of all sizes consider inclusion of a profit share so any claims surplus can be partly recouped.
- For full insurance contracts of over £500,000 consider move to a risk share or cost plus style contract with the opportunity to recoup any surplus whilst limiting exposure to any deficit.
- For any contract over £750,000 premium explore options for cost plus (with or without stop loss protection), corporate deductible or healthcare trust.
We are working with insurers to obtain initial renewal terms at the earliest opportunity, giving us time to analyse the unique circumstances of each risk, liaise with providers and find the best solution for our clients.
Q: Can employer contributions be phased or delayed given the current situation?
A: As it stands there is not an option to defer or phase contributions.
Guidance from HMRC focuses on the ability to be able to claim back Employer contributions of furloughed employees but this is the only break we are aware of at this stage. In summary, for at least three months (starting on 1 March 2020) employers can claim back part (the lesser of 80 per cent of regular salary, or £2,500 per month) of the wages of ‘furloughed’ employees, plus the Employer National Insurance contributions and minimum auto-enrolment (AE) employer contributions associated with the claimed wages. Any additional pay above the claimable amount and the contributions thereon will not be covered; nor will AE contributions above the minimum 3 per cent of qualifying earnings. Should an employer wish to reduce their existing contributions to the statutory minimum, the current consultation requirements will need to be followed before any reduction.
The Department for Work and Pensions (DWP) has said this would offer businesses hit by the Covid-19 shutdown support, without them needed to suspend AE plans which would have a detrimental impact on their employees’ financial future.
Word of causation for employees – should an individual decide to leave the pension scheme, this may impact their membership of other employee benefits such as group life assurance or group income protection where coverage is linked to pension scheme membership. Should the individual later re-join the pension scheme they may be deemed discretionary entrants for the associated group life or group protection policy and subject to full medical underwriting for their benefits.
For any questions that aren't covered in the FAQs above please contact firstname.lastname@example.org.