Commoditisation of group risk benefits does brokers, the customer, and the industry no favours

As providers begin to compete heavily on price, both brokers and employers should be wary of the commoditisation of group risk benefits related to retirement savings. Price competition on group risk benefits has increased significantly over the last few years, resulting in changes to the product features and terms and conditions of group risk benefits.

So says Walter van der Merwe, CEO of FedGroup Life. "The cheapest option is seldom the best option, simply because the price is not sustainable in the long term, putting both the employer and the broker's own business at risk.

"Because cheap options cannot possibly cover all the risks relevant to members of a retirement fund, disappointed employers and employees will cancel the fund sooner rather than later, when their benefit expectations are not met.

"The employer suffers a loss of credibility with its employees. And the broker suffers loss of business and, worse, damage to its reputation when the price for the group risk benefits are significantly increased due to the under-pricing to secure the business at any cost.

"Specifically, broker businesses founded on the sale of retirement funds that include group risk benefits cannot prosper without long-term relationships with their clients. You can't build a long-term relationship, however, if the products you recommend escalate sharply in price at renewal to fund the low prices used to get through the door."

An over-emphasis on price by product providers also causes reputational damage to the life industry itself as employers and employees become suspicious of industry offerings. This puts hundreds of thousands of employees at risk of not having appropriate or sufficient cover for death, disability or illness before retirement. It can also put retirement savings themselves at risk because companies may choose not to offer retirement savings facilities to their employees.

While this is destructive to the economy as a whole, it creates entirely unnecessary obstacles to growth for brokers.

"In terms of risk benefits, cheap can be extremely nasty," Van der Merwe says.

The trend to commoditise group risk benefits is being driven by the erroneous idea that all such products are the same, distinguished only by the name of the brand offering them.

However, each life insurer assesses risk differently and therefore has its own definitions of benefits, different terms and conditions, and variations in enhancements of the group risk offerings. "It's vital, therefore, that brokers and their customers do thorough comparisons of the products available," Van der Merwe says. "The last thing you want is to be taken by surprise by the small print or exclusions of group risk benefits you might have taken for granted until price became such a market differentiator.

"Brokers are required to give customers comprehensive advice in order to empower them to make the best choices. Such advice includes explaining the benefit structures of the products one is recommending to enable a complete comparison.

"Obviously, price is an important aspect of addressing affordability in relation to net retirement savings. But it is profoundly destructive to all stakeholders when it is used as the only rationale behind a recommendation."