In every relationship there comes a time where the real value of it is revealed to both parties. Over the last year it seems many holders of individual PMI policies have been weighing that very question up, and as Owain Thomas writes, the answer is increasingly negative
‘We need to talk' is a phrase that all too often signals an imminent parting of the ways. And that appears to be what many people have said to their private medical insurance (PMI) brokers and providers over the last 12 months.
‘There's no easy way to say this, so I'll just come out and say it,' is another oft used cliché to deliver such tidings, but it is also apt here, because as a result of all those awkward conversations, last year was not a good one for the sector.
According to statistics from the Association of British Insurers (ABI), less than one million personal PMI policies were in force at the end of 2009 (the most recent date for which figures are available).
The total of 970,000 is the first time this figure has fallen below the million mark since the ABI's formation in 1985. While the fall may have been only 50,000 from 2008, it indicates the difficulties that those earning their crust in the market have to face.
Debbie Kleiner-Gaines, managing director of Best Health UK, has experienced this fall in demand first hand and now finds half her job is to convince people not to cancel cover completely. "The big issue for us is trying to keep people from cancelling and making them aware that there are more affordable options," she says.
"It has been about trying to find lower level cover because in the past people have just wanted to renew their comprehensive plan, and so we have done more introducing of quite new products to people. Now they are saying ‘ok I don't want to cancel it altogether because my broker has convinced me that it is a bad idea.'
"But the thing that comes alongside that is switching people and renewing their medical history," she adds.
This can bring its own problems and appears to be another area where in recent years intermediaries are seeing increasing demands on their time and expertise.
"Each insurer has different criteria so we need to have a really good understanding of each insurer's switch criteria and fit that to the client," she explains.
"We can normally find somebody for every client, it just might not be the plan we thought best for them. It might be the only plan that we have got an option of going for because of the price."
The safety net the state provides is a further push away from the need for private healthcare. And while the NHS budget has been ring-fenced, it appears the government has adopted a more relaxed policy towards targets and services offered, suggesting a cut in real terms spending and increased efficiency savings is on the way.
Impending Upheaval
But despite these well publicised measures and the impending organisational upheaval in the NHS, it seems PMI industry measures which target the potential side effects on NHS services has little impact on the private healthcare buying public.
"We talk about it in the industry but actually our clients don'ts," says Kleiner-Gaines.
"Most clients come to us because they have had a bad experience personally, it is not so much about what they read in the press. We do have a higher proportion of clients than in past that are saying ‘can I just rely on the NHS?' and having a really good think about that.
"Those fearful about being on an NHS ward will switch to an inpatient only plan - but it is more just ‘can I afford to keep this going?' especially if they have never claimed, because they see that as a cost they have had to endure year after year and not had anything back from it," she adds.
The purchase of Standard Life Heathcare by South African based Discovery - and subsequent incorporation into its PruHealth joint venture with Prudential - has raised serious concerns with Kleiner-Gaines about the lack of variety available in the market.
"If anyone buys anyone else then we are in big trouble," she says.
"There cannot be anymore consolidation because at the moment there is not enough choice out there, and there always needs to be an innovative plan in the market.
"We want to be able to give people a non-no claims discount plan, and there is not enough range for that type of plan," she adds.
For Brian Walters, principal of Regency Health, the Standard Life acquisition is story of the year so far.
It too raises worries for Walters about the general state of the market and prompts a gentle warning to the newly expanded company.
"A narrowing of the field is obviously a concern for brokers, especially given that Standard Life were one of the 'big four,' he says.
"PruHealth are committed to the UK PMI market though, and have a track record of innovation. New products are planned, but PruHealth should be cautious not to impose more upheaval on their customers after a slew of product changes in the past eighteen months or so," he adds.
Walters also feels the National Institute for Health and Clinical Excellence's (NICE) purported banning of Avastin cast PMI in a positive light, but he suggests the industry still has more to do in foregrounding the limitations on cancer cover that apply to many policies.
"Invariably, those limitations are relegated to the policy wording, rather than highlighted in the policy summary," he says.
Feeling the squeeze
"Looking ahead," he continues, "insurers will continue to feel the squeeze and may therefore place greater demands on brokers, while concerns linger that the lower rate of Insurance Premium Tax will be raised further.
"This would be a particular problem for the sector, given that premiums are already subject to annual increases well in excess of general inflation," he concludes.
Providers are not blind to these fears and many understand that the industry has a reputation to build with its potential customers. However, the current economic situation means this can prove increasingly difficult and so other paths need to be explored.
Mike O'Brien, head of intermediary sales at Exeter Family Friendly, is also concerned about the public image that insurers in general, and the PMI market in particular, has.
"When people need to use our product it is when they or someone close to them is not particularly well, so emotion rather than logic takes over," he says.
"So we have to be sure that when we are dealing with people in this state we are fair with them. We have to do what we can to help people establish the value of the products and service we provide and the best way to do that is to offer transparent products which keep their promises.
"We cannot just try to drive market share by designing products that, at face value, look as though they do certain things, but when it comes to the crunch do not deliver to the customer," he adds.
Rousing new interest in the market is always a keen point in any industry, but with the aforementioned ABI statistics and current economic hardship being felt by many, it is particularly important in the PMI arena.
And it is clear that O'Brien appreciates this, suggesting providers need to look outside their traditional ideas.
Avoiding the old traps
"We cannot rely upon the government spending review to stimulate market interest for us because if we do that we will fall into the same old trap and consumers will fall into the same old habit of saying ‘I'm sure it will be OK, the state will look after us'," he concludes.
One provider that has responded to the challenge is Aviva. As Neal Archbold, head of propositions and market development at Aviva Health explains, the government has been pushing an overall wellness agenda, something the insurance giant has been focusing on.
"We have been pushing forward aligned to that agenda, and trying to make sure that we are moving away from our purely health insurance proposition," he says.
"There is a clear direction from the coalition around empowering individuals and businesses to look after their employees and to be accountable for it. So I absolutely believe the opportunity does exist. We are working with multi-sector companies looking to how they can collaboratively work with government and the consumers in the UK to push this health agenda forward.
"I think there has to be great collaboration for it to be successful," he adds.
While being quietly confident about Aviva's growth in the coming months, Archbold acknowledges that the sector in general is likely to stay rough.
"I think the market will remain tough. Overall PMI has very low penetration in the UK consumer and corporate base so there is still head room, but it is about doing the right thing and working collaboratively to do that," he concludes.
Indeed, it seems collaboration with government and third parties on an industry wide scale may be the only way to really expand the reach of PMI in Britain.
Certainly it seems to be the coalition's preferred method and perhaps PMI providers should look at their protection counterparts for inspiration on co-operation to address government targets.
