With Tesco launching a direct PMI product while Legal & General exits the market, Kirstie Redford reports on how this affects big players' market share and the sector as a whole
It may only be a few months into 2007, but there have already been two headline-grabbing stories about the individual private medical insurance (PMI) market. Tesco has launched a direct PMI product that many have labelled as decidedly controversial, and one of the market's prominent players, Legal & General, has withdrawn from the market altogether.
Both of these developments have been a blow for PMI advisers. Although some may argue that Tesco's product, which is underwritten by Axa PPP Healthcare, could help raise awareness of the market to the wider public, the fact that it encourages customers to buy the cover direct over the phone or online without professional advice has, understandably, got many advisers' backs up.
"Selling without advice is really quite dangerous. Policyholders need to know what they can claim for and how the underwriting works," says Phil Taylor, managing director of specialist PMI broker, Preferred Medical.
However, the general feeling is that Tesco's proposition is unlikely to provide any real threat to the market. "Sainsbury's tried to sell medical insurance four or five years ago with AIG and it sold very little. I don't see why Tesco's will be any different," says Taylor.
Shrinkage
Legal & General's departure, on the other hand, could have a more worrying effect. "It is always dangerous when providers pull out. Axa PPP and Bupa control 70% of the market so the more players we have the better. Axa, in particular, is growing at a fast pace at the moment. Any shrinkage is bad news," says Taylor.
Jan Lawson, managing director of specialist PMI broker, Private Health Partnership, has also been disheartened by Legal & General's exit. "It's always a pity if a provider leaves, as it means the market becomes more restricted. Legal & General's products were popular as they were straightforward and offered three levels depending on your budget, so it will be missed," she says.
Another less known provider to leave the market is YourHealthPlus, which, according to Lawson, recently went into receivership. "I understand hospitals have not been paid and client money has also disappeared. I was always suspicious as its pricing didn't seem to stack up. But it's a great pity this has happened because it is a bad reflection on the industry."
And the market could be about to take another blow. Lawson hints that another provider of individual PMI is rumoured to be up for sale, but is keeping the name firmly under wraps. However, she did hint that it is unlikely to be one of the big players.
"It's difficult for small providers to make decent returns. The countless regulations and sheer volumes of paperwork make it a very long and expensive process getting new products to market or even making amendments. It is hard to make decent money while also providing good value for policyholders, so it's no surprise that smaller players feel the pressure," she says.
Despite this shrinkage, other signs are positive that the individual market is seeing some well overdue growth.
Chris Barkell, director of sales at Exeter Friendly Society, says its individual business in the UK has seen a marked increase in enquiries over the last six to nine months. "We've also seen sales growth in the second half of last year, which is the first increase we've seen for a good few years. It's hard to put your finger on why this is, but it could be the publicity about concerns over MRSA and the state of hygiene in NHS hospitals. People see PMI as a way to avoid this," he says.
This is a trend Lawson is seeing reflected in her clients. "There has definitely been some growth in younger age groups and young families, where primary concerns seem to be fear of MRSA and the cleanliness of NHS hospitals," she says.
Taylor, of Preferred Health, is still seeing growth. "There's no doubt that increased publicity over the NHS fuels interest in PMI. We're seeing younger age groups showing interest. We've actually seen business grow by a staggering 80% last year," he says.
This renewed interest, especially by younger policyholders, is also being mirrored at Bupa. Fiona Harris, head of personal markets at the firm, says that it is seeing individual sales increasing. "Health is at the top of people's agendas, and, with more information about what's available locally on the NHS, plus personal experiences of being let down by NHS services, more people are being prompted to look at PMI," she says.
According to Harris, cancer care, in particular, is proving popular with new policyholders and there has been growth in 'catastrophe' cover. "Having a specialist network of cancer centres available and being able to provide a full cancer care service does appeal. Our specialist breast and bowel cancer networks are also proving to be attractive with prospective policyholders.
"Cover for just heart and cancer treatment can offer big savings. It's not our main product but there's definitely a growing customer base for catastrophe cover," she says.
Lawson says her clients tend to be looking for protection against bigger bills, rather than fully comprehensive plans. "People aren't bothered about getting cover for every £20 physio bill, so more are opting for inpatient-only plans or £500 plus excesses."
Affordability remains an issue in the market and insurers have been working to provide more options for policyholders to cut premiums. Co-payment plans, such as WPA's Shared Responsibility and Exeter Friendly Society's Shared Care mean that policyholders can use their savings to part-fund treatment, drastically reducing premiums.
Exeter's Shared Care has the added benefit of no age-related premium increases, making it a popular option among older policyholders. "People making enquiries want to push cost down as much as possible. We've seen our Shared Care cover become our best seller in the UK over the last three months. Our target market is over-55s and this is perfect for them as they tend to have savings tucked away," says Exeter's Barkell.
Options
Other less traditional options are emerging that provide policyholders with part savings, part insurance. For monthly premiums starting at just £20, National Deposit's Healthcare Deposit account allows policyholders to build a savings account to part-fund treatment, while the insurer meets the higher percentage of costs.
Other money-saving options include plans that provide set cash sums to pay for specific treatments, such as PatientChoices offering, which provides different bands of cash benefits, allowing policyholders to shop around for the best value treatment and keep the surplus cash.
However, one product that is, arguably, making the biggest impact on the individual market is PruHealth's Vitality offering, which offers cash incentives for improving your health.
"PruHealth is developing very well, despite the fact that it hasn't got its systems quite up to scratch yet," says Lawson. "If policyholders are interested in their health and going to the gym, it can offer some attractive discounts. Pricing of younger age groups is particularly competitive and I think we'll see more insurers trying to compete with PruHealth's model in the long term."
Dave Priestley, PruHealth's sales director, confirms that it is experiencing fairly rapid growth. "We are getting a lot of customers that are new to the market and we're appealing to a broader section of customers - many in their 20s and 30s - because we are offering benefits on top of the core insurance product," he says.
But, despite this and other tales of growing sales across the market, individual PMI still has a long way to go. Nick Telfer, head of life and protection at Defaqto, says current products still appeal to relatively few people. "We reckon around five million people have pet insurance and just one million have PMI - that says a lot about the market's appeal," he says.
Like many before him, Telfer says the industry has to reinvent itself and change its perception if sales are to ever see substantial growth. "There's no getting away from the fact that it's still seen as a luxury product rather than a necessity. At the end of the day, people feel they have already paid for their health cover through National Insurance and other taxes," he says.
One in-road could be for PMI providers to forge relationships with protection providers, so products such as critical illness, income protection or life cover could link in. This would, according to Telfer, mean more IFAs would be interested in selling PMI products.
"When we surveyed 500 IFAs, 96% said that they never wrote any PMI or did so infrequently. IFAs are deterred by their lack of knowledge and the perceived complexity of products. I really believe that PMI providers have to engage with IFAs if sales are to increase," he says.
In the meantime, Preferred Medical's Taylor says that developing popular features like no claims discounts could be a wise move for insurers.
"I think no claims discounts offer value and a more sensible approach, reducing premiums for more healthy lives. However I'd really like to see protected no claims bonuses emerge - I'm sure they will, it may just take some time," he says.
Whether we will see more hybrid products emerge to catch the attention of protection IFAs or more rewards for healthy lives, individual PMI is ripe for innovation. As long as we do not see more insurers withdraw, sales are tipped to see more steady growth and the signs look promising that the market could be, very slowly, turning a corner.
Kirstie Redford is a freelance journalist
