Alistair Sclare issues a call to arms for a PMI sector where dissent is coming to the fore
As we recently saw the New Year in, and offered each other New Year greetings, no doubt many of us wished for a ‘peaceful' and ‘prosperous' 2011 for family, friends and colleagues. But what are the chances of peace breaking out in the private medical insurance (PMI) market, so that we can look forward to some prosperity while delivering first-class service to our clients?
It is fair to point out that the various market participants are not actually at war, but there are disagreements and conflicting ways of working that do nothing to make the market more efficient and, in fact, make it less effective.
Take, for example, the lack of consensus on claims sharing - whenever the market takes one step forward on agreeing how data can be shared, some parties quickly take two steps back to protect their own position.
Perhaps it is not surprising that tensions exist: it has never been easy to get PMI insurers to agree on anything. Little wonder that they find themselves in conflict with other parts of their supply chain too.
Before looking at particular pinch points, it is important to bear in mind the context within which PMI operates. The country is in an era of swingeing public sector spending cuts, rising retail price inflation, worryingly high levels of unemployment and, for many, falling disposable income. Whether customers are businesses or individuals, they will be conscious of every penny spent and every pound saved.
But if the business climate is tough, insurers only make it harder by doing the wrong things or by not doing the right things. The sector risks a bleak 2011 if we do not resolve troublesome issues.
Let us begin with the tension between insurers and consultants. As ever, money is at the root of the issue: insurers believe some consultants charge too much. But consultants argue that they are following free market principles and are worth every penny.
This belief manifests itself in their opposition to fixed fee schedules for consultants and to the creation of restricted hospital and consultant networks for use by insured patients. The Federation of Independent Practitioner Organisations says these networks will erode patient choice and potentially restrict their freedom to trade, perhaps by serving as a barrier to entry to the market. They also believe that issues relating to the continuity of care will arise when a care provider suddenly finds itself precluded from a network.
Feelings run deep
Feelings run deep on both sides. Medics resent any suggestion of a financial straightjacket, while insurers counter that they are not a bottomless pit. So will the two sides ever achieve a compromise?
We have to. Insurers (or rather, their policyholders and those insured under group schemes) need doctors and hospitals. Private hospitals, meanwhile, obtain around 60% of their revenue from the insurer community, as do consultants. The two parties need each other, so it is imperative that some mechanism is found whereby they can engage in constructive dialogue.
It is worth remembering that PMI is not a ‘normal' market. If people are buying any other service they can, within reason and with all things being more or less equal, use the lowest price as an indicator of best value. But in medicine, the more a consultant charges, the better he or she is deemed to be. So the competitive imperative does not apply in terms of hard cash. All the more reason then, for serious discussion about how to construct a market that is fair and viable over the long term, where everyone benefits and where consultants defend their value, rather than assume it.
The issue has been given fresh urgency by the announcement by the Office of Fair Trading (OFT) that it is to examine the competitiveness of the private healthcare market and the extent to which consumers are getting a fair deal. It won't be beneficial to the market if the OFT finds the two factions at each other's throats.
Insurers naturally believe change must come from those that deliver medical services. They say the medical fraternity should take a more realistic approach to fees and stop assuming it can treat insurers as a limitless bank account. But insurers actually have to engage with these groups and work together to reach a general understanding. The economic squeeze on the NHS is forcing medical practitioners to accept that its finances are finite. What better time to emphasise that the same applies for insurers?
A collective voice
Insurers need a collective voice to get this message across.
Cancer cover is another area of conflict. The topic was raised in the House of Lords in 2010, where Lord Crisp has said much about his desire to see clarity and understanding for policyholders - as well as taking a few swipes at insurers. But the real issue here is that policies that were originally designed, and underwritten, as a means to get people back on their feet quickly and with the minimum of inconvenience following ‘routine' illness or injury are now being used for severe conditions that may have become chronic/long term.
It is true we are not supposed to say cancer is chronic, but it should not be a capital offence to say this, in many cases, it exhibits most of the characteristics of the conditions that the policies were never intended to cover.
Cancer patients live longer and are treated in different ways to when PMI policies were designed, and this is to be welcomed. But there is a need to ask whether policies now in force are the right way to pay for this treatment.
The status quo is not an option because the money isn't there to sustain the current model. These costs are increasing too fast and squeezing the benefits in other parts of the policy, particularly out-patient treatment, where more conditions are treated and more restrictions are applied.
Grasping the nettle
Any mention of cancer, of course, brings a chill to the room, and the cancer charities have been very effective in raising concerns in the insurance industry. Insurers need to tread carefully if the merits of their argument are not to be nullified by allegations that they are simply looking to avoid paying claims. That is perhaps why the situation has deteriorated to the extent that it has - but this nettle must be grasped and, if we are to do it, it will need to be together.
Moving on, we begin 2011 with yet another attempt to establish PMI electronic trading to match other classes of insurance. Healthcode is the perfect market solution to the problem of us each having our own individual web-based quotation systems, where brokers key-in everything numerous times, risking mistakes and wasting time. Most of the work has been done and everyone stands to gain, but the market cannot even agree on something as simple as this.
Marketwide, e-trading would introduce unprecedented levels of efficiency and effectiveness for all, reducing costs dramatically and finally dragging PMI into the 21st century, a mere ten years too late.
The industry's inability to reach accord on an industry-wide communications and transactions portal will have a hugely detrimental impact on the lives of brokers. Insurers in the pro-broker camp will continue to put the case and lobby hard for swift and meaningful change.
An outsider might conclude that introducing new communications technology is a big ask and that opposition and hesitation are understandable. But the technology is proven and is already in use elsewhere in general insurance. All we need to do is adapt it. That would be straightforward in technical terms, but the difficulty is a political one, because it requires unity of purpose and a common ideal across the market.
PMI is too important for its well-being to be compromised by mistrust and a lack of co-operation. This sector as a whole must aspire to the level of sophistication now seen in the general insurance market.
The issues we face must be addressed at an industry level. Let us hope 2011 is the year in which PMI insurers work together in the interests of our customers and the market itself.
Alistair Sclare is director of healthcare at Groupama Healthcare
