Timing is critical
What will theintermediary marketlook like in five years’time? Alex Broadreports on the latestThink Tank debate
Angela Faherty: If we thinkabout how the market is likelyto shape up in the next fiveyears, what will it be like togive advice?
Damian Lenihan: From ourperspective, and looking backfive years, we think it will bebroadly similar to what it is now.The two main things that willhave an effect are regulation bythe Financial Services Authorityand the knock-on effects of theSpitzer enquiry in the US.
Angela Faherty: In terms of what exactly?
Damian Lenihan: There will be a move towards greater transparency. There’s a caveat which says that if a customer asks the adviser about details of the sale, it’s incumbent on the adviser to tell them.
Richard Walsh: That has always been the case.
Damian Lenihan: But there will be a move for group consumers, in particular, to ask more questions.
Angela Faherty: Do you think there will be developments so that becomes part of the sales process?
Damian Lenihan: I don’t think the FSA will get involved.
Richard Walsh: That’s what they have said up until now, yes. One area of note is that there is an issue for employers buying private medical insurance. At the moment the NHS is adequately dealing with their employees. I think you have to assume they will be successful to some extent. The consumer choice agenda means that people will have higher expectations than before. Priorities for individual and group customers will change.
Rob Doole: Looking at transparency, there should be reward statements for employees so that they understand the cost of employers’ spend on employee benefits. If they can see that private healthcare is 20% of their employer’s spend, they will understand the cost of healthcare. Similarly, with regard to employee choice, the growing trend towards flexible benefits in the UK means that employees can choose the benefits they want and also see the value. Both those things are developments we will see in the next five years.
Angela Faherty: But will customers understand what they are getting?
Roger Hymas: A huge amount of medical care is delivered to the client and a lot of it is not effective. As a customer, you have to put yourself into questioning mode. As we move towards greater patient choice, one of the things that is likely to happen is that more people will learn about their condition, then choose an option. The better-informed patient will receive better treatment.
Angela Faherty: So it might be harder for advisers as a result of that?
Roger Hymas: Consumers are becoming more knowledgeable, but in many ways, what we have is a health insurance industry that hasn’t changed in the last thirty years.
Stephen Walker: But from an adviser’s point of view it’s changed dramatically. If you look at the private medical insurance products available now we have lifestyle products, an increasing number of modular products and hospital payment plans. We also have the shared responsibility concept, and no claim discounts. What we want as advisers is something to focus on what the client needs.
Roger Hymas: Not only do we need that, we also need more risk management in terms of where the client is coming from. In the corporate market there will be a move towards it being perceived as risk management.
Elliott Hurst: I think if we go back five years and look at the market now, there’s been quite some change. Look at the way advisers and consultants work, it is very different. If we go forward to 2010 it could be very hard for advisers. Group medical is driven by e-commerce, but in group risk, we are still seeing some developments. That market has some challenges to catch up with group health, which takes out quite a lot of the work intermediaries do. So what value is the adviser adding on a day-to-day basis? It’s about knowing your client more intimately. The key point is that the administrative side of the business will be dealt with directly. For remuneration in large corporate we have an hourly charge similar to that employed by accountants for example. Our fees are explicit already.
Peter Elliott: Again, looking ahead, in five years’ time we will have to understand what the client is looking for. I can’t see that the SME market will change dramatically. It’s too price sensitive.
Roger Hymas: It depends how big you consider an SME. The small end will just say ‘save the money’.
Peter Elliott: I still think the small market values it more.
Damian Lenihan: The biggest growth has come from the SME market. The market is certainly growing for us.
Roger Hymas: Is the private medical insurance market growing? Are we moving into a structural change?
Stephen Walker: People have talked about this for a long time. But larger insurers who have done their research know where growth potential lies.
Peter Elliott: Regarding advice, I agree totally with Elliott’s view that advisers add value to the decision-making process. Proving that is the biggest challenge for all of us. The large corporate market will choose to deal with fewer advisers. They will look for help in risk management. People who currently cross between the two will be squeezed out of the market. They will have to think very carefully about that. Disclosure is coming whether we like it or not. It’s on the horizon. Some people will struggle to keep the margins they have.
Elliott Hurst: Such discussions may also raise the question, what advice and support do we need to offer clients? Do I always need external advice and help? To maintain and then grow a level of annual year-on-year income is a real challenge to many advisers. A client might, in the future, decide not to seek independent advice for, say, a three year period. There are two elements here. First, broking or renewal-type work. SMEs might do something there on an annual basis, but there is no absolute guarantee that larger employers will. Second, as mentioned previously, I think the move away from administrative paper-based interaction with the client takes out some of the historical element of an adviser's service to employers.
Richard Walsh: It’s like outsourcing really.
Stephen Walker: But don’t you think if you have a change in the marketplace and a lot of product development going on there is more of a reason for people to review their cover on a regular basis.
Elliott Hurst: It depends which market you are talking about. In the larger corporate marketplace it is unlikely that many employers will renew them every year.
Angela Faherty: If we could look now at people who cross into small and large corporate business, will we see advisers pushed down the specialist route?
Peter Elliott: I think we will see a lag in effect. Those in the large corporate market will embrace change much quicker. They will present themselves as business solutions. private medical insurance specialists will struggle in that arena. I think the SME sector will lag someway behind. I think twenty years ago they said it would not survive because they would not keep taking the increase in cost. Yet, here we are having the same discussion. It’s perceived as a valuable benefit. Private medical insurance is still one of the top three benefits in most surveys. It will become more diverse in terms of who does what. What will happen however, is that it will take one provider to come in and change the way that business is assessed. There may be a one to three year review. It will all come back to what value they get from the advice. The market and decisions will be driven by the corporate sector becoming more educated. Now we see clients bringing out information they have received directly from insurers. The SME market will tail behind in this regard.
Richard Walsh: There’s an interesting challenge for insurers. If we have a shrinking number of advisers, you would be quite restricted in terms of distribution routes. The power relationship will change.
Angela Faherty: In what way will distribution be restricted?
Richard Walsh: When the rest of the insurance market was regulated, advisers dropped out. It’s logical to presume the same will happen again. You have got a shrinking number of advisers and increasing number of specialists.
Roger Hymas: Stephen, has the membership of AMII changed as a result of regulation?
Stephen Walker: Very few people have dropped out because of regulation. A few people have gone down the network route but the few we have lost we have more than made up for in new members. AMII membership is fairly static but has increased somewhat in the last year. In terms of specialist private medical insurance intermediaries there is not much change. I think we will find that once we get past the first and second reporting stage, perhaps there will be more impact on the market place and people will come to the conclusion that there’s too much paperwork and administration.
Damian Lenihan: I think you are right. The people who are choosing not to be a part of the market only do a small amount of business. It will happen but it won’t have an impact on distribution.
Angela Faherty: What about cross-selling?
Elliott Hurst: At the moment we have many specialists who have a background in, say, either group risk or group medical but have little vision with regard to the broader health management piece. In the future, this is likely to have to change. As such, many of us will still have specialist knowledge in a particular area, but we will have had to become more generalist. Insurers are taking a more proactive approach toward client relationship management from a consultative sell, rather than a pure product sell only approach. As such, advisers have to take a similar approach.
Angela Faherty: Is this the same for the individual market?
Stephen Walker: I take on board the comments and I agree that there is a risk there. I think people will have to develop a more rounded knowledge base on the individual side too.
Elliott Hurst: You have to have the ability to see the bigger picture.
Damian Lenihan: Certainly from our point of view looking at the intermediary market it has become very competitive. Those with a protection account will try to expand into private medical insurance.
Elliott Hurst: Also if you are going to do the best work for your client it does not matter whether it’s me or a colleague advising. The consulting house or brokerage has to deliver more than a private medical insurance only broking line of service. You then have to look at the impact of broader issues such as absence management. It’s not necessarily just large corporate companies, it can be SME clients too. There are a lot of opportunities for advisers in this respect.
Angela Faherty: So what other issues are intermediaries facing at the moment that might be gone in five years’ time?
Roger Hymas: We will all have different views on this, but I think the biggest area has been the non-insured or selfinsured clients. They are going to captives.
Angela Faherty: Hasn’t that levelled off now?
Roger Hymas: I think about one million people in the private medical insurance market are using a company taking the risk and using the company to manage it.
Damian Lenihan: We are not seeing that.
Roger Hymas: But it’s still one million people.
Elliott Hurst: If you’re talking about large corporates, then there is always the potential for an insurer to offer competitive priced insured options, which may in turn lead to a decision to remain insured, rather than move to a selfinsured or healthcare trust option.
Angela Faherty: So selfinsuring is an issue now?
Roger Hymas: If you look at the escalating cost of insurance, large corporate companies say‘we know the actuarial risk, we can eliminate the risk by selfinsuring.’ Where the market is actually playing a particular hand, where the price is competitive there will be fewer people who self-insure.
Damian Lenihan: We offer a whole range of services. If a client feels they can take the risk themselves that’s fine. We are satisfying consumer needs with our product range.
Angela Faherty: What about regulation?
Peter Elliott: Advisers are facing the issue of having to adapt to the Financial Services Authority regime. The challenge at the moment is to become Financial Services Authority compliant and interpret the requirements, dealing with the pressures of training and competency and the associated costs. We get those who are in the larger corporate market and those in SMEs. Those larger businesses or broking houses where the Financial Services Authority will make its first round of visits, will drive those smaller advisers out quicker. That’s the issue. The focus then is how are we going to survive as a business. How will you increase your income? That is the biggest challenge. How will you continue to grow your business? It could be powerful if used in the right way.
Elliott Hurst: There are three key areas. The first is that regulation will evolve and change and perhaps look quite different to how it looks today. Second, a challenge to both insurers and advisers is to achieve greater efficiency and accuracy of service and of advice delivery. Third, there is the challenge to advisers to innovate and create different areas for client advice. These might not be product saleslinked, it might be consulting on broader employee health issues rather than focusing on the sale and advice of commission- based products only.
Angela Faherty: Is there anything on the individual market side? What are the threats and opportunities there?
Stephen Walker: The individual sector is very different. You are talking about two entirely different products. The knowledge base is very different.
Angela Faherty: So are the challenges different?
Stephen Walker: Obviously we all face the challenge of Financial Services Authority regulation. It has in many ways impacted on those small traders rather than large organisations in terms of the time and paperwork involved, but it has also had a positive impact. People are now focused on the way they present the products and their selling process. In many ways it has helped them refine and update their processes. Regulation has been quite a hurdle. I would not be surprised to see the Financial Services Authority sectorise insurance regulation. At the moment it is a one size fits all approach and I think the Financial Services Authority is finding it difficult to manage it.
Richard Walsh: I agree with that but I think there are some other challenges for the individual market. One is the role of the Financial Ombudsman Service and the potential for intermediaries selling into that scheme. There could also be reserving issues for intermediaries.
Damian Lenihan: It would certainly impact on income protection.
Richard Walsh: Then there is also the treating customers fairly initiative. There’s a huge issue there about the difference between rules based and principles based. Also with technology you have two conflicting things. One, more information for consumers and two, the adviser who can help them but then what does the consumer do? You can spend a lot of time with them then not get the business.
Roger Hymas: Regarding treating customers fairly, if private medical insurance is sold in a silo, surely that cannot be best advice? What do you do?
Stephen Walker: If somebody is interested in private medical insurance then my job as an adviser is to advise on private medical insurance. Regarding affordability, my own company has always provided a premium projection based on current rates, so clients know where their premiums are likely to get to.
Rob Doole: In terms of placing business, there are capacity issues and that’s a problem intermediaries are facing now. In the life assurance market, concentration of risk is a problem for advisers, and in five years’ time I would expect that there would be capacity issues in income protection as well. If we had a Piper Alpha equivalent, more people would be injured than killed which is an income protection issue. As crtical illness grows we might also see capacity issues there too.
Angela Faherty: So what does the future hold in terms of product development?
Stephen Walker: More hybrid products.
Rob Doole: Yes, the market is changing. If you look at an income protection scheme, how has it changed in five years? It hasn’t, but the market has to adapt.
Elliott Hurst: The challenge to innovate may be that, for example, where catastrophe risks are an issue, the placing of group life risks may have to be split between different underwriters. If you look at the group risk market generally, the number of providers is not expanding, so therein you face an immediate challenge. Another challenge to many employers is to revisit the basis of their benefit design, for example, in the area of group income protection to ask the question"do I want to provide a through to normal retirement date based benefit"? This in turn leads to the consideration of, say, term based income protection benefits, which also leads to a much bigger discussion around the management of ill-health, the process by which it is managed, the providers of such rehabilitation services and so on.
Damian Lenihan: We are looking at the holistic solutions.
Angela Faherty: How will technology affect the way intermediaries work?
Damian Lenihan: It will radically change the way we all deal with each other. There will be more e-trading. It will take away some of the more mundane tasks from intermediaries. It will allow them to do more of the quality tasks.
Stephen Walker: It has been a long time coming.
Angela Faherty: Are advisers and providers working together on this?
Damian Lenihan: We are piloting a number of things. They have had a great effect. It helps the speed of decisions.
Stephen Walker: On the private medical insurance side, the position is lead by international private medical insurance through necessity. If you are dealing with someone on the other side of the world, it helps to do it electronically. Certainly the small intermediary needs help with how to use technology.
Angela Faherty: What are the current issues around service?
Elliott Hurst: Accuracy and timeliness. We need to know how to speed this up and avoid things being lost. There’s also a risk management perspective for intermediaries too.
Roger Hymas: You can also engage the employer. In Ireland, Vivas started without a legacy system. In terms of getting individuals to register, it is easier.
Angela Faherty: It is obviously easier if you do not have legacy systems. It seems the market is heading for some change, but it has been a long time coming.
Stephen Walker: It will happen quicker than people expect.
Damian Lenihan: I think in the next three to five years we will see the most change. There will be greater segmentation.
Roger Hymas: Things will be tough for five years but I am very bullish for health insurance from 2009 onwards.
