Perhaps more often thought of as a protection provider, Exeter Family Friendly is a major player in the PMI market with serious growth plans. Paul Robertson discusses the changing market with Mike O'Brien.
In many ways, Exeter Family Friendly is a strange beast. Essentially, it sells only two products: individual PMI and individual IP. A mutual, it is as about as small as you could get, while remaining in the big leagues with the likes of Friends Life, Ageas, Bupa or PruHealth.
However, this does lend a certain distance from the concerns of other, less focused brands, and the firm does have ambitions. "We enjoy being at the small end of the large, because we can do things that some of the large commercials do not want to do, and we can make sure that people get the cover they want," said Mike O'Brien, the insurer's head of sales and marketing.
"Conversely, we enjoy being at the large end of the small, because we can see that the future for some of our smaller competitors contains issues around compliance and solvency. We feel that there is an opportunity for them to come and join with us and become an even bigger, friendly society. We see growth through merger opportunities. We have made no secret of that. It is how we are where we are today, by getting an IP and a PMI provider to work together."
Overcharging crackdown
An area where a lack of muscle has perhaps been less helpful for Exeter has been on the PMI side in its dealings with the private hospital networks.
O'Brien admitted, as with all insurers in this market, the challenge in addressing the Competition Commission's recommendations was to try to control costs, which drive premiums.
"We have a fine balance, there is a tension between what we can say to a hospital and what they can say to us, because we do not have this dominant effect," he said.
"The Competition Commission did not really open much for us. But if all insurers could scale back on some of the overcharging that was going on, we would hope to have benefited from the halo effect of that."
When the report was first published, Exeter could see an opportunity to rein back some excesses that had gone unchecked within the marketplace. However, the focus of the report on central London has been a little unhelpful for the smaller PMI providers.
O'Brien said: "You have to remember that a lot of the interest in central London is driven by large insurers who write large corporate business. They are able to go to the hospitals and promise them footfall, or throughput, into their facilities. That gave them a bit of an edge. That is not something we enjoy, of course, because we do not have that scale.
"I think a few people have commented that maybe the focus of the Competition Commission looked in the wrong area. It should have been outside of London."
However, Exeter is acutely aware that private hospitals are running at less than 50% utilisation rates, so their expenses are sunk into what they can charge.
"What does that mean for us?" O'Brien asked. "Well, they view Exeter as incremental business. Therefore, in our approach, we say, ‘We cannot change the game for you, but perhaps if we can push your utilisation rates up by the odd percentage here and there, given that you have amortised your costs across your standard operating package, anything we can do over and above that is more than a bonus.'
"So that gives us a position with which to negotiate. We do not struggle with the hospitals because the reputation we have for promptness of payment. They welcome our members as their patients because they know with Exeter, the bills will be paid, and they will be paid in a timely fashion."
Of course, one of the reasons the Competition Commission became involved in the first place was because costs were passed on to the public. But what difference will the Competition Commission report make to customers in general terms, across the broad spectrum of PMI?
O'Brien is not hopeful: "One would hope that it would have a controlling influence about charging. But I have not seen any evidence of it. That is more of an aspiration.
"There are two drivers aren't there? We can see what has happened to consultants' charging over the past decade or so. We can see what has happened to advances in procedures now available, and that has driven medical inflation.
"But underneath, it is still the overnight costs of about £400. It's not insubstantial. Fortunately, though, advances in technology have meant that people don't stay in hospital for as long as they used to. The advent of day care surgery and outpatient surgery, in terms of the accommodation charge, has dissipated that effect."
Product development
Product design is another route to cheaper premiums for the health product market, but a cheaper product would have either fewer conditions covered or less cover for those conditions.
This approach has not been popular in the past, with either the public or IFAs advising, who are wary of leaving things out. Many are expecting the dam to burst and for this market to grow. Is Exeter interested?
