As the NHS still plays media punchbag, steadily losing public confidence, PMI must pick up the resulting slack and take the lead in quality healthcare, writes Sam Barrett Click here to download pdf
Confidence is high in the individual private medical insurance (PMI) market. After years of lacklustre performance, there are signs of a renewed interest in the product.
Figures from the Association of British Insurers support this. It found that the number of individual PMI subscribers increased from 1.01 million in 2005 to 1.03 million in 2006. Additionally, gross-earned premium edged up from £1,449m to £1,509m.
Robert Dixon, head of product development at Bupa, is not surprised by these findings and expects 2007 to show similar signs of recovery. "We've certainly seen a return to stability this year. We run a survey that looks at consumers' attitudes to the NHS and this has found a lot of concern about areas such as cleanliness, drug restrictions and deficits. There is political uncertainty about whether the Government will be able to pay for the NHS," he says.
This disenchantment with the NHS is leading to sales enquiries from across the market. For instance, at PruHealth, chief executive Shaun Matisonn says that 50% of new individual sales are from people who were not in the market, with half of these never having had cover before. "We are very pleased about this," he says. "We need to attract new people to the market and it's great that they are seeing the value of PMI."
Against this backdrop of renewed customer interest, fuelled by concerns about the NHS, there has also been plenty of activity among insurers.
In terms of insurer movement, Legal & General exited the PMI market with its book of business picked up by Axa PPP healthcare. Matters were not so happily resolved with YourHealthPlus, which went into administration at the end of 2006, leaving customers without cover and the Financial Services Compensation Scheme launching an investigation into the company.
Alternative routes
Meanwhile, PatientChoice stepped up its activities, pushing into the broker market with the appointment of former Clinicare sales and marketing director, Stuart Scullion, to the role of head of sales. This is a move that has pleased intermediaries, as Emerson Alder, individual healthcare adviser at PMI Health Group, explains: "We've had a good response from this product as, cost wise, it sits between a cash plan and PMI. I expect to do a fair bit more business with it too."
It is also interesting that two insurers have teamed up with high-street names to distribute PMI. Axa PPP healthcare joined up with Tesco while, more recently, PruHealth has started offering its product through Boots.
Both ventures have been criticised, especially in the trade press, with intermediaries unhappy that they were cut out of the equation and doubts raised about whether PMI could be sold through high-street stores.
But Matisonn is confident that the venture with Boots will be successful. He explains: "It's early days yet and we don't expect the product to be sold in-store, but it is a good, health-related relationship. We're particularly looking forward to working with them through the pharmacies, for example, from September, members will be able to get health screenings and earn vitality points in-store."
And, while there has been criticism from the market, not everyone is negative about these ventures. "These partnerships have received a lot of bad press, but I think it's really an indication that the market is turning around," says Chris Barkell, director of sales at Exeter Friendly Society. "Having PMI on the high street will help to raise the profile, which will benefit the market."
As well as exits and strategic partnerships, there has also been plenty of activity in the product-development arena over the last year. In particular, and possibly inspired by PruHealth's plans, insurers have looked at how they can incorporate more health-related benefits to their products. For example, Bupa added discounted gym membership and access to online health information to its individual plans this year. "People who look after their health are more likely to consider PMI, so it makes sense to offer them benefits that appeal," says Dixon.
Switch terms are becoming more commonplace too as insurers slug it out for market share. "People used to stick with the same insurer, but more insurers are offering switch terms so there's a lot of movement in the market at the moment," says Alder. He particularly likes the offerings from Standard Life Healthcare and PruHealth, adding that they offer very favourable switch terms.
There have been a couple of new products too. Following its acquisition by Simplyhealth in 2005, BCWA launched Personal Health in the summer of 2006. This is a menu-based product offering five different options, which are in-patient, out-patient, complementary therapies, cancer and heart treatment and dental and optical treatment.
Alder says there has been a lot of interest in the BCWA plan. "Unlike other menu-based plans where there is a core product, customers can pick exactly what cover they want. It's also very well priced," he explains.
WPA also reminded the market of its taste for innovation with the launch of mycancerdrugs, which provides up to £50,000 of cancer drugs and treatment that are not available through the NHS. With the annual premium the same as the individual's age, this won a lot of media coverage and, although there is no commission available, some intermediaries are promoting it as a top up to existing cover.
Certainly cancer cover has been one of the big stories in the PMI market over the last year. Although many insurers used to duck the cancer issue by pointing at their chronic conditions clauses, the matter came to a head last summer when the National Institute for Health and Clinical Excellence licensed herceptin for use in the early stages of breast cancer, forcing the insurers to extend cover to this and other cancer treatment too.
Cost
The real issue with this extension of cover is cost. The cost of these new drugs is significant, for example, a year's treatment with herceptin costs more than £20,000, and this will put pressure on premiums.
Insurers have taken different stances on covering cancer. For example, Exeter Friendly Society introduced caps on oncology treatment a few years ago. These vary from around £10,000 to £50,000-plus and are constantly being reviewed in line with new treatments. Additionally, it has an oncology support team who liaise with the customer and their oncologist so they know what treatment costs will be paid. "We recognised that we could either introduce caps or premiums would have to escalate. This wouldn't have been ideal and could dampen the renewed enthusiasm we are seeing in PMI," explains Barkell.
A similar position is in operation at BCWA, where the heart and cancer option on its plan pays out up to £50,000 for the treatment of each condition during the policy lifetime.
Other insurers have resisted introducing caps. "We asked our customers about their cover and they said their number one concern was that treatment for cancer was covered. Because of this, we will cover everything at all stages, although we recognise that this could lead to increased claims costs," says Dixon.
Another challenge may come from the change in economic conditions. Over the last year, there have been four increases in the Bank of England base rate, which, coupled with premium increases, will put pressure on policyholders' budgets. Once the effect of this trickles down to policyholders, perhaps as fixed-rate mortgages expire and the cost of borrowing increases, it could result in some deciding to cancel cover.
"Insurers need to be much more innovative with products," says Glen Smith, managing director of Healthcare Partners. "So far they've looked at things like large excesses and set prices but these only have a limited appeal. If we want to appeal to a wider market, we need a different model."
PruHealth's health and vitality model is likely to remain an influence on the market. Matisonn is a firm believer in it. "You need to attract healthy people to keep claims costs down and sustain premiums," he says. "Some of our competitors are currently experiencing premium increases, not because of the increasing cost of treatment but because the healthy people are no longer on their books."
Bupa is also looking at a new model, which incorporates early detection into its plans to help to keep claims costs down. Dixon explains: "We're looking at developing a plan that would include a cancer screening programme. The tests needn't be intrusive, for instance mole scanning, but with many cancers, if you catch them early they can be treated fairly easily and at significantly lower costs."
Unfortunately though, the real key to innovation in the market may lie with the Government. While sales are nudging up as a result of consumer dissatisfaction with the NHS, many people still have faith that the service will improve and are, therefore, not prepared to purchase PMI. "We need some form of co-insurance with the State so that people can see exactly what cover they need to take out," says Smith. "This is the only way we will see a dramatic increase in sales."
Sam Barrett is a freelance journalist
