PMI - The quiet creak of opportunity

Group private medical insurance is a strange beast. Although it straddles both the general insurance and protection markets, it has developed a reputation for being something of a specialist product.

While this reputation may have deterred many brokers from grappling with PMI, the sales figures suggest that a bit of bravery may be in order. "The group PMI market is buoyant," says Ronjit Bose, proposition development manager at Standard Life Healthcare. "The recent statistics from the Association of British Insurers (released in April 2008) show strong growth in the corporate market, with the number of people covered under corporate schemes the highest since 2001."

More growth is expected, too. Howard Hughes, sales and marketing manager at BCWA, explains: "There is still a lot of churning going on but we do see virgin business, especially in the SME sector. If we hit a recession and companies downsize then it'll be even more important to keep employees fit and healthy and away from long NHS waiting lists."

Over the last few years, the key trend in the corporate arena has been menu-based products. The latest of these to be launched is Standard Life Healthcare's Business Healthcare, which allows clients to tailor their cover by adding on extras such as dental insurance, private GP cover and health screening.

Mike Izzard, chairman at the Association of Medical Insurance Intermediaries and managing director at The Premier Choice Group, believes this type of product is beneficial: "These plans allow you to tailor cover to your client's requirements in terms of both cover and premium. The choice also means that the adviser can really demonstrate the value they bring to the client."

The flexibility that the modules offer means also that employers can test a cheaper part of the product, for example the most basic level of PMI cover, before committing to a more comprehensive scheme. Likewise, insurers also benefit from greater flexibility. Bose comments: "We will be able to add new modules as we develop them, rather than have to launch a completely new plan."

Another growing trend in the group PMI market is wellbeing, with many of the PMI providers following PruHealth's lead and adding in options to help employees look after and improve their health.

Examples of these new wellbeing features include Bupa's Positive Health and Norwich Union's Personal Health Manager; both are online health assessment tools that provide employees with personalised health advice and information based on the details they provide. Although the information is confidential, employers also receive an overview that can be used to determine the value of further health initiatives.

However, Glen Smith, managing director at intermediary Healthcare Partners, is concerned about how these options will weather the economic downturn: "These can be useful benefits, especially if the information received is followed up but, when the economy is shaky, these sorts of extras can look superfluous and might get dumped in favour of stripped-down plans."

Whatever the economic cycle, keeping premiums as low as possible will remain another key requirement in the group PMI market. A number of cost-saving mechanisms are available, with excesses being one of the most common; these reduce premiums by requiring employees that makes claims to pay the first £25 or more.

More PMI options have also come into the market. Co-insurance can reduce premiums and is available on some of WPA's corporate schemes. With this, the policyholder pays 25% of the cost of claims up to an agreed annual maximum. This maximum could be £250, £500, £1,000, £3,000 or £5,000.

Rather than adding these types of cost-control mechanisms, groups of 400 plus may benefit from moving to a medical expenses trust. These are free from insurance premium tax and, because you have greater control over claims costs, are on average 10% cheaper than PMI.

As well as adding on options, new styles of PMI have come into the group market. A prime example of this is friendly society National Deposit's group healthcare deposit account, which was launched earlier this year.

Premiums are set at the outset and can be as low as £20 a month, with half of this going into a deposit account for the employee that can be accessed to help pay claims or pay out when they leave. The other half goes towards a PMI scheme, giving access to a set annual claim fund which is paid out on a co-insurance basis, as well as on optical and dental benefits.

The concept is already well established in the individual market and Nigel Killick, marketing manager at National Deposit, says the group scheme has additional features to make it relevant to its market: "We've added in an employee assistance programme and up to £350 of health screening for each employee every two years. We launched it at the beginning of April and we've had a lot of interest, especially from SMEs."

Tapping the market

Given the opportunities on offer, it is certainly a market that should not be ignored, although the barriers to entry are fairly high. "It's its own market and a very specialist one," says Nye Jones, director of distribution development at Axa PPP healthcare. "Unless you're prepared to make a significant investment, it can be a massive distraction from your core products."

If you are prepared to put in the time then there is plenty of support from the insurers. "We have broker consultants in the field that can provide training and literature so that you can get into the market," says Hughes. The same is true for many of the other insurers, too.

However, while support is available, there can still be hurdles. Claire Ginnelly, head of business development at Groupama Healthcare, says: "We're more than happy to work with general insurance brokers, especially if they have a relationship with us on our general insurance arm already. It's not always this simple though, as some insurers insist on a minimum amount of PMI business before they'll grant an agency."

Acquisition is another viable way to tap the market. "This can work particularly well where a business acquires a healthcare specialist and integrates it into its business so that they can sell to the existing client base," Jones explains.

As well as gaining or buying the resource in, some of the specialists have set up operations to help other brokers into the market, for example Jelf's network arrangement, the Purple Partnership.

Another example is Premier Choice Group's Healthcare in a Box. Izzard explains: "With this, we allow general insurance brokers to use their own agencies and then we mentor them and give them access to special deals that we have negotiated."

Premier Choice takes a margin but according to the firm, because it has negotiated enhanced commission, the general insurance broker will still receive more than if they had done it all themselves.

"Group PMI shouldn't be left to the specialists," says Izzard. "The only way to grow the market is if general brokers and independent financial advisers recommend PMI to their clients."

If this still represents too much of a commitment then it is always possible to set up an arrangement by which you refer PMI leads to a specialist. For example, the British Insurance Brokers' Association has set up a referral system through its PMI focus group. Peter Staddon, head of technical services at the association, explains: "There are so many variations in policies that it can be very time consuming to determine which plan is most suitable for your client. Referring these cases to one of the specialists will ensure best advice and deliver a financial reward through a commission share."

Arrangements can also be set up outside of this, though Jones advises: "There is definitely room for strategic partnerships but make sure that these are robust and that both parties know what they want to get out of it. It's a profitable market but casual agreements don't work."

GROUP PMI MARKET STATISTICS

The latest figures from the Association of British Insurers show positive growth for the group market.

- The number of corporate subscribers increased from 2,345,000 to 2,377,000 over the course of 2007, an increase of 1.4%.

- The number of people covered increased from 4,188,000 to 4,341,000, an increase of 3.7%.

- Gross earned premium grew from £1.56bn to £1.67bn, an increase of 7%.