Ill Health Liability Insurance
Early retirements due to ill health generate significant costs and volatility across LGPS funds, at both whole fund and employer level.
With over a 10% chance of an LGPS member retiring early due to ill health, you need protection against having to pay these potentially catastrophic costs.
Ill Health Liability Insurance
An employer recently had to pay an ill health early retirement claim of £793k – we know many employers simply can’t afford this.
Our market leading Ill Health Liability Insurance eliminates this risk, covering the value of any valid claim up to £4.5m. Hundreds of LGPS funds have already taken out the insurance and are no longer exposed.
Whether you’re an administering authority or an individual employer, get in touch now for a free, no obligation quote and experience analysis of your fund to find out how much risk you’re exposed to and how easy it is to eliminate it.
Eliminate the risk you're exposed to
The cost of ill health early retirements can be catastrophic for many LGPS employers. As public sector bodies’ finances continue to be scrutinised, Ill Health Liability Insurance protects small and medium sized employers from unaffordable strain cost bills, deficit increases and contribution hikes.
Last year, over 4,000 members within the Local Government Pension Scheme took early retirement due to ill health. Who had to pay for this extra cost? Their employer. Watch our short video above (with or without sound) to find out how this can affect you:
What is ill health liability insurance?
Over 1,200 LGPS employers (covering over 55,000 members) throughout the UK have now taken out ill health insurance from Legal & General to remove the potential huge unexpected costs demonstrated above.
The insurance was developed at the request of LGPS funds to help employers remove the risk of the often unaffordable cost of unexpected ill health early retirements.
What are the benefits?
There are a number of advantages of taking IHLI:
- Cost neutral decision to take out insurance – By taking out this cover, you could receive a reduction in your employer contribution rate by the amount of the premium.
- Removes potentially catastrophic ill-health early retirements costs
- Stabilised Contribution Rates and Balance Sheet – because the costs will be covered by the insurance the impact of ill health costs are removed - helping to maintain a stable contribution rate and balance sheet.
- Multiple Claims Cover – Insures against the cost of multiple claims.
- Employee Assistance Program – access to L&G’s 24 hour employee assistance service for all of your employees.
Recent claims
Shown below are details of a few recent claims paid by Legal & General to employers with the insurance.
| Member age | Salary | Service | Strain / claim |
| 50 | £12,000 | 9 years | £157,000 |
| 42 | £26,000 | 11 years | £357,000 |
| 44 | £33,000 | 2 years | £426,000 |
The benefit of having the insurance in place for those employers who were affected by the above claims was that it ultimately reduced the impact on their funding position, balance sheet and potential future increases in their contribution rate. Here is what one of the employers said:
"Reassuring that, despite the sad situation, the insurance was there to cover the cost."
LGPS employer
Avoid unaffordable costs
Annual strain costs of ill health early retirements can be upwards of 3% of payroll at whole fund level. Ill Health Liability Insurance can be taken out at whole fund level, or on behalf of employers, to remove this year-on-year volatility and reduce the risk your fund is exposed to.
The significant costs and volatilities of ill health early retirements (IHERs) are causing difficulties for employers across the LGPS. At the request of LGPS funds, Legal and General, in collaboration with Hymans Robertson, have developed bespoke LGPS ill health insurance to remove the cost and volatility problems of IHERs.
Where the fund does not charge for ill health retirements (for example in the same way as early retirements) these significant costs fall directly into the employer’s deficit at the next valuation, which can cause significant and unexpected budgeting problems for employers.
How IHLI can help
Funds
At present your employers effectively self-insure against IHERs through an additional amount added to their employer contribution rate by the actuary. Typical additional amounts range from 2-10% of employer pay, which take many years to cover or pay off even an average IHER cost.
In contrast IHLI premium rates are 0.3-2% of pay and will pay the full cost of IHER immediately.
Around 20 Funds have already decided to remove this risk by putting in place Ill Health Liability Insurance (IHLI) that can be accessed by their employers. With cover in place, the risk that an employer could be faced with unaffordable additional deficit is removed. Without the insurance this additional deficit might cause the employer to fail, leaving a deficit in the Fund which has to be met by other unconnected employers.
Employers
Huge increases in the number of employers in LGPS funds means more small bodies are exposed to IHER financial risks. Amongst these are over 5,000 Academies across England – a number which is growing every day. As word of mouth spreads of the successes of the cover, we have lost count of the number of employers that have approached us for information.
When public sector bodies’ finances continue to be scrutinised, IHLI removes (often inadvertent) self-insurance and protects small and medium sized employers from unaffordable strain cost bills, deficit increases and contribution hikes.
Download our short guide to IHLI for employers
The benefits
- IHLI mitigates the potential of catastrophic individual and multiple IHER costs
- Removes risk of employer failing as a result of IHER costs
- Cost of insurance can be included as part of normal employer contribution rate instead of current addition made by the actuary
- Annual strain costs can be upwards of 3.0% of payroll at whole fund level – insurance removes year-on-year volatility
- Experience analysis - we will carry out analysis on your fund’s ill health experience at no cost to help you make an informed decision on taking out IHLI
- Tried and tested - a number of LGPS funds have already taken cover at whole fund level or on behalf of their employers (for example admitted bodies/academies/pools)
- No extra work for officers – all communications at quote stage, to and from employers, are handled by Hymans Robertson
- Access to L&G’s 24h employee assistance programme for all employees (not just LGPS employees) included as part of the cover for no additional charge. This type of service can often be inaccessible or costly for employers to obtain elsewhere.
Different types of cover
Working with Legal & General we have developed various LGPS tailored policy options:
Whole fund policy – this would cover all employers in the Fund
Partial fund policy – the option covers an agreed group of employers (for example admitted bodies/academies/pools)
Individual employer choice – this allows employers to make their own decision on taking out the insurance. Various communication approaches can be used:
- Opt out/auto enrolment for certain employer groups
- Request a Yes/No decision from all employers on using external insurance or understanding the risks in current approach
If employer choice is the preferred approach then communication material and admin support to answer questions and calls can be provided by Hymans Robertson’s IHLI team.
Understand the detail
Please refer to Legal and General's series of technical guides to help you understand their Ill Health Liability Insurance plan and policy.
L&G's Technical Guide for Local Government Pension Schemes
L&G's Technical Guide for Academies
Ill Health Liability Insurance claims process - a guide for those who are ready to make a claim
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