The number of private medical insurance (PMI) policies in the UK (insured and self-insured) fell by 3.8% to 3.96m at the start of 2011, according to Laing and Buisson.
However, findings in the market analyst's 'Health Cover UK Market Report 2011' show the PMI sector is expecting to lift market spending in 2011, stoping the slide in PMI take-up which has seen the proportion of covered UK residents drop from 12.4% in 2008 to 11.1% at the start of 2011.
The number of PMI policies funded by companies decreased by 3.3% last year to 2.95m, while individual paid policies fell by 5.1% to 1.01m.
Spending on (insured and self-insured) PMI contracted by 3% in real terms (taking into account economy inflation (RPI)) during 2010 to reach £4.15bn.
However medical insurer margins were in better shape in 2010 as claims costs fell more sharply (4.3% in real terms), and margins improved from a low level in 2009.
Commenting, Philip Blackburn, economist and author of the report,said: "Reduced real spending on UK PMI in the last two years mirrors the sharp contraction of the UK economy during 2009 with a lag of at least six months. However, volume demand (policy numbers) shrunk further than spending, as average prices for PMI continued to edge upwards, pushed by significant real claims cost inflation in 2008 and 2009.
"What this illustrates is the clear vulnerability of the health cover market during the economic downturn."
However, over the next 3-4 years, Blackburn projects stronger economic growth, and economic stability, to encourage gradual recovery in private medical cover demand.
Blackburn added: "Modest UK economic growth in 2010 may be expected to deliver a small real increase to private medical cover spending in 2011, by companies and individuals alike. Nevertheless, this may not be enough to fully stabilise the downward trend in demand volumes."
Spending on health cash plans also fell sharply by 7.1% in real terms during 2010, as the average price paid for cash plans by a decreased contributor base fell by just over 3% in real terms. However, as benefits paid slumped by 8.2% margins for cash plan providers edged to a new high.
Demand for dental cover appeared least affected by the recent downturn, as the number of subscribers to ‘stand alone' dental benefit plans fell only marginally by 0.6% in 2010 to reach 3.23m at the start of 2011.
