It is clear that medical inflation is having consequences, but what is causing it and what is to be done? Mike Izzard investigates.
The main reason for this is a result of their property asset backing and the indication by the last Labour government that more NHS work was going to be parcelled out to the private sector over the ensuing decade.
Of course, political decisions being as transient as they are (and the change of government didn't help) this has proven not to be the case.
Therefore, as many private hospital chains were acquired by private capital at the top of the market during the last decade, they are all highly geared and need sizeable profits to repay the interest on loans.
This is no doubt a factor that is driving up medical inflation and putting pressure on the insurance companies. As the insurers are effectively spending policyholders' money as opposed to their own, the resultant and constant upward pressure on premiums is having an adverse effect on growing the PMI market or even sustaining it at its current level.
The third strain of this inflationary trilogy is the effect of distribution costs, specifically in this case, intermediaries. Intermediaries are continually pressing insurers for higher initial commission rates to cover the cost of marketing and lead generation activities as well as compliance costs.
This is heavily influencing the rise in volume driven arrangements between insurer and intermediary, and even sometimes the ‘solus' arrangements where some whole of market intermediaries are tied into arrangements with an insurer that may not fit under the umbrella of most suitable advice.
We have already recently seen this type of activity incurring the displeasure of PruHealth which promptly cancelled the agencies of several intermediaries allegedly adhering to this very practice.
As an intermediary, it is reasonable to believe that the future of the PMI industry depends upon a whole of market led advice principle. Albeit this would be with a reducing number of insurers and with the introduction of a fair but level commission structure which would help to stabilise premiums and increase the longevity of the healthcare market.
For those intermediaries who are not PMI specialists, it would probably help to know what they can do to help reduce medical inflation and escalating costs for their clients, by applying the mechanisms that are already established and other acceptable methods.
For example, there is the application of a voluntary excess which can be applied in one of three ways: excess per person per year; an excess per course of treatment per year, and in some cases even an excess per claim year.
These excesses can range from £100 to £1,000 or above, and all insurers tend to offer a different range at a different discount rate appertaining to each. Some insurers also operate a co-share arrangement which is similar to an excess, but where the client agrees to pay a percentage of the costs of each and every claim.
This has the effect of reducing premiums charged by the insurer of between 10% and 40% which makes the product far more affordable to the average client.
