Knowledge is power

With the private medical insurance market often described as being driven purely by price, it is easy to imagine that company PMI has simply become a commodity. But, is this the case and, if so, what are brokers doing about it?

Feedback from brokers suggests that the pressure is really on to retain existing clients. With many providers offering similar products with comprehensive ranges of PMI benefits, utilising the same hospitals and using standard payment and claims settlement terms, brokers have their work cut out for them in terms of both retaining existing business and attracting new business for providers.

To address these issues, a key element of a successful broker-client relationship has to be shared knowledge, and this can encompass a broad range of initiatives. Acknowledging that brokers have a vital role to play in both an advisory capacity and in influencing companies' purchasing decisions is key to a successful relationship. Providing a broker with as much quality information as possible about a product is essential for a provider in adding long-term value to a partnership.

If brokers have an in-depth knowledge about the provider's PMI product and are able to prove it can meet a client's needs more effectively than a lower-priced alternative being offered by a competitor, then it could prove critical to retention in an environment where it might seem that everyone involved is destined to fight for market share on price alone.

When a broker asks to discuss specific aspects or needs of a client, they should have access to product managers or underwriters, experienced in dealing with the needs of brokers and who have the authority to respond to their needs without a time-consuming referral process.

However, it is just as important as being able to offer expert advice to their clients as it is to be in the position of providing clear and concise information that is not in any way misleading.

Managing a client's expectations is, to a large degree, managed by the broker, but can also be greatly facilitated by the provider. It is not uncommon for complex and confusing small print to exist within a policy containing clauses that are not always highlighted by the provider. Traditionally, a number of providers have offered a full refund in their plan but, with the recent introduction of policies that are centred on reducing claims frequency and cost by offering a lower premium in return for a lower level of cover, policyholders can be left unaware of the exact terms of their cover.

It is vital that policyholders are made fully aware of their entitlements and the terms of their cover at the outset because, if they are not, it can be difficult for brokers, who may be the first point of contact for clients in the event of a query, claim or complaint. Providers should be selling products that do exactly what they say they do. This approach equips brokers to offer a wealth of knowledge about a product and prevent situations where a policyholder is confused about what is included or excluded under their policy, thereby reducing the risk of potential difficulties for both the broker and the provider at a later date.

As a result of an increase in the number of claims year on year, many providers have been forced to increase policy premiums. These increases are typically higher than claims inflation due to advances in medical science and because every new treatment generates more bills.

A report on PMI in the UK compiled by Mintel in September 2004 suggests that leading providers will be increasing their premiums by between 6% and 10% over the next 12 months. But there are several other factors behind this, including the UK's ageing population, the inability of the NHS to cope with the healthcare requirements of the entire UK population - leading to more people using private healthcare to avoid long waiting lists - and the changing attitude of policyholders who do not now consider PMI to be a 'luxury' product, but use their policy to benefit from procedures that are not immediately available to them via the NHS.

Of course, for a broker, a large increase in premium requirements and renewal pricing by the provider often results in their clients requesting a full market review and this means additional costs for the broker, both in terms of time and commission earned.

The SME sector in particular has more finely tuned budgetary requirements and it is therefore more difficult for them to deal with volatility in renewals. Brokers need to find a 'steady ship' in relation to both premiums and service standards. Brokers and providers both need to seek alternatives to simply raising premiums in order to avoid alienating customers as the cost becomes indefensible. Some private healthcare providers have responded to concerns about rising premiums by launching fixed-price cover. A client taking out a policy today will know exactly how much their policy will cost in five or 10 years. This marks a major innovation.

Other examples of new types of policies that are appearing on the market include menu-driven policies, which allow the customer to tailor the cover to meet their individual needs, and moratoria underwritten products.

Recent trends

Another possible reason behind the increases in premium charges is a downward trend in sales, with the latest Association of British Insurers figures, published in May 2005, confirming this trend. In 2004, there were 3.685 million PMI subscribers, generating around £2.9bn of premium income and covering over 6.6 million lives. The total number of subscribers fell by just under 0.8% in the last year, reflecting the continuing decline in individual business. However, despite the fall in PMI subscriptions on the personal side, there was a rise in the number of corporate subscribers (to 2.6 million) equating to 4.8 million lives covered.

The 'decline' in individual business is not reflected in the SME sector either, where both the 'virgin' and portfolio markets are growing. In fact, according to Datamonitor's UK Health Insurance 2004 report, the healthcare market as a whole is forecast to grow by an average of 4.8% a year between now and 2009.

These recent trends should encourage brokers and providers to move towards ensuring that more consumers see and receive the correct education about the value of a PMI policy and, in response, deliver products that are responsive to customers' needs. Brokers are at the forefront of the relationship with a client and are in an ideal position to find out exactly what is required and then feed back to the provider on both a client's needs and expectations. For example, with cost control being a concern for all UK businesses, large and small, issues such as absence management are being pushed up the agenda.

Working together with shared knowledge, a provider and their broker can aid each other, offering products that are designed to improve people's health, rather than acting merely as a back-up to avoid lengthy waits on the NHS.

As the government continues to place health high on the nation's agenda, brokers and providers will see rising policyholder numbers if they work together to demonstrate that their products will assist in improving health, as well as getting employees back to work more quickly and reducing a company's direct and indirect costs.

With competition at its fiercest, a product that differentiates itself in the market can benefit the broker as well as the provider. And there is considerable room for innovation within the market. Providers should be embracing the concept of alternative types of cover. For example, making policies more individual by offering a core plan, then bolting on modules to offer a more personalised solution; or seeking out the best service standards, which, traditionally, the PMI sector has lagged behind other sectors in terms of providing the best service.

Many would agree that, in the past, a provider has not been required to provide excellent customer service to be the best. However, this is changing and, if both the broker and the provider are able to provide evidence of high levels of customer satisfaction at all stages of a relationship, they will both reap the benefits.

In addition to this, a broker that is able to demonstrate that a provider is continually appraising its own service standards and is doing their best to make improvements and correct any failings, will almost certainly increase their credibility in the market.

Perhaps the more contentious issue in relation to differentiation is openness between providers and brokers in the provision of performance data. The broking market has an important role to play in lobbying and indeed demanding that providers be more transparent in this area because it is in the best interests of their clients.

Disclosure

Currently, there is great inconsistency in those providers who are willing to disclose this information, and this is creating a false impression of providers that are performing well and those that appear not to be. If all providers made their performance data public, a broker's role in promoting a truly high-performing product would be made far easier - the evidence would be in full view of the client.

So what of the future? For all of these reasons, the role of the broker cannot be underestimated in contributing to both the provider and the client relationship, despite the challenges they face in order to achieve success. For providers, the broker market has an important part to play in both a distribution and advisory capacity, helping to reduce the decline in policyholder numbers on the individual side and also to boost sales within the group/corporate market.

But it cannot be done by the brokers alone, and providers are recognising that the most effective and profitable relationships are borne through acknowledging a broker's strengths and working together for mutual benefit.