LONDON, Monday 15 May 2006 - The average law firm in the UK is failing to keep check on the costs of providing its employees with benefit packages, according to the latest research from Aon Consulting, a leading pensions, benefits and HR Consulting firm, which surveyed the top 25 law firms operating in the UK.
The survey found that law firms could make a staggering 60% cost saving on provision of Group Income Protection (GIP) to their staff, without compromising the provision of benefits to the staff or the firm. Working on the same assumptions¹, Aon contends that a there could be savings of approximately 60%, which would equate to £0.5 million per annum for the larger UK law firms.
The widespread provision of Private Medical Insurance (PMI) as a healthcare benefit also presents law firms with the option of cutting provision costs. Here Aon argues that, as a general rule, law firms can cut their benefit cost by as much as 8 - 10%, simply by placing a £100 excess on the policy offered.
Commenting on the findings, Nicholas Clapp, Senior Consultant in Aon Consulting's Risk Practice said: "Law firms tend to take a more traditional approach to their employee benefits structure than some of the other industries we've worked with. And whilst they tend to offer a high level of benefit provision to staff, the nature of their work can sometimes impact on their propensity for change to 'tried and trusted' benefit structures. What this means is that they may well lose out on cost savings that other industries have already benefited from.
"Our own experience in the legal marketplace tells us that it is possible to control and even reduce benefit costs by altering benefit design slightly, without impacting upon the overall benefits package offered, and how this package is perceived by the workforce."
Mr Clapp added: “Ultimately, the value of a law firm is not the building they reside in or the systems they use, it all rests on the sum of its employees, and that’s why it is so important to strike a balance between offering competitive benefit packages to employees and maintaining overall benefit expenditure. A small handful of law firms are now leading the way in modernizing the structure of their benefits.”
Below is the list of examples of GIP and PMI benefit design cost savings that have been widely adopted by other industries but have yet to be deployed by UK law firms:
GIP - Restricting payment period to a limited period (as opposed to up until normal retirement date). This would allow the firm to remove staff from their payroll and cease provision of other employee benefits at the end of the fixed term. The GIP policy can also be structured so that it provides a lump sum payment to the beneficiary at the end of the limited term. This can take the place of other means of severance payment.
NOTE: By adopting this measure alone, Aon argues that a typical law firm can save 60% on its GIP costs.
GIP - Further insurance savings can be achieved by altering a deferral, or waiting, period before a GIP is paid out, as well as addressing hidden costs such as the employee remaining on the payroll and in receipt of benefits to normal retirement age.
PMI - Placing a £100 excess on the beneficiary's PMI policy, which would mean that he or she would pay the first £100 before claiming on this policy, thereby reducing the overall premium sum paid out by the firm.
PMI - Additional insurance cost savings could also be achieved by tailoring the excess to specific groups of employees or dependents.
Note to Editors:
The Group Income Protection figures are based upon the figures for a typical top 200 law firm with 400 employees.
GIP| Company | Renewal premium – payout to NRA (£)
Based on market review at the time of writing | Renewal premium – 5 year term (£) | Savings (£) | Savings (%) |
Law firm in UK Top 200
400 employees
Average claims history | £196,965
| £80,645 | £116,050 | 59% |
Law firm in UK Top 10
1,300 employees
Average claims history | * | £428,138 | £616,101 | 59% |
*Assume the same level of savings for earlier example. If this figure is projected forward, we estimate that the normal premium would be £1,044,239. Thus the saving would be approx. £0.5million saving for a large law firm.
PMI
Aon Consulting’s Risk Benefits Practice suggests that as a general rule, £100 excess will normally save a client 8-10% on the premium.
| Company | Renewal premium – no excess (£)
Based on market review at the time of writing | Renewal premium - £100 excess (£) | Savings (£) | Savings (%) |
Law firm in UK Top 200
PMI membership of 32
Average claims history | £35,684 | £31,651 | £4,033 | 11% |
About Aon Consulting
Aon Consulting is a leading human capital consultancy, helping organisations of every size to attract and keep the employees they need. We advise on all aspects of employment, including health-related insurance and risk; employee compensation and pensions; human resource strategy planning; job design and change management; and staff assessment and legal issues. Aon Consulting is a division of Aon, one of the UK’s largest insurance brokers and providers of risk management services and a major force in reinsurance and the UK human capital consulting market. Aon Consulting Limited is authorised and regulated by the Financial Services Authority.
About Aon
Aon Corporation (www.aon.com ) is a leading provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. The company employs approximately 53,000 professionals in its 600 offices in more than 120 countries. Backed by broad resources, industry knowledge and technical expertise, Aon professionals help a wide range of clients develop effective risk management and workforce productivity solutions.
This press release contains certain statements relating to future results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from either historical or anticipated results, depending on a variety of factors. Potential factors that could impact results include the general economic conditions in different countries around the world, fluctuations in global equity and fixed income markets, exchange rates, rating agency actions, pension funding, ultimate paid claims may be different from actuarial estimates and actuarial estimates may change over time, changes in commercial property and casualty markets and commercial premium rates, the competitive environment, the actual costs of resolution of contingent liabilities and other loss contingencies, the heightened level of potential errors and omissions liability arising from placements of complex policies and sophisticated reinsurance arrangements in an insurance market in which insurer reserves are under pressure, and the timing and resolution of related insurance and reinsurance issues relating to the events of September 11, 2001. Further information concerning the Company and its business, including factors that potentially could materially affect the Company's financial results, are contained in the Company's filings with the Securities and Exchange Commission.
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