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Upcoming welfare reform could be good for the UK group risk market but age discrimination laws are threatening growth, according to Swiss Re.

Group Watch, a report by the financial service giants, published last week revealed premiums in UK group life, income protection and critical illness businesses rose 5.2 per cent to £1.59bn from 2006 to 2007.

Providers and advisers responded to a Swiss Re survey, saying they are optomistic about the changes to the incapacity benefit due to start in October but citing "uncertainty" over employers' requirements under 2006 age discrimination laws as a concern.

The benefit changes will introduce a new form of medical assessment for claimants based on ascertaining types of work they are capable of undertaking rather than not working at all. It is believed up to half of existing claimants could fail the new tests.

They were announced last year by Peter Hain, the then secretary of state for work and pensions, who claimed it was a bid to end a "sicknote culture" in Britain.

The age discrimination shake-up made firing or not hiring and advertising for jobs on the basis of age illegal - even outlawing words like 'energetic' from job adverts.

The report states: "As the implementation date for changes to incapacity benefits approaches, welfare reform is seen as key for 2008 and into 2009.

"Unlike the age discrimination regulations, which continue to be seen as largely negative, welfare reform changes are seen by many as a cause for optimism, albeit that detail from the Government was not available when the respondents completed the survey."

Paul White of Aon said the welfare reform proposals were "about employer employee relationships" in a job market where many people would be coming off benefits into work.

And he warned the age discrimination rules would see employers paying out for higher insurance premiums for workers older than 65.

Ron Wheatcroft, co-author of the Group Watch report, said: "It is vital that the market responds to the opportunities presented by the upcoming welfare reforms.

"In particular, this means adapting the design of income protection products, along with making it clear to employers how group risk can present affordable solutions for the ultimate benefit of employees.

"While Welfare reform could grow the market it would be ironic if the age discrimination rules were to result in a scheme withdrawal and lesser benefit provision in the provate sector."