Wellness not just for the wealthy

Two years ago, a non-specialist broker looking to capitalise on the private medical insurance market would have found it hard to crack. Medical inflation was growing between 4% and 5% above the retail price of inflation, mainly due to rapidly advancing medical technology and new drugs. This was pushing up costs for providers, which in turn was pushing up premiums. High and rising premiums meant that some customers - particularly the young and healthy - were starting to pull out. This in turn put upward pressure on premiums, as young and healthy people help insurance companies keep their average premium down.

In recent years, additional distribution issues have also complicated matters for brokers, such as the rise of supermarket financial services, the online consumption of financial service products and the direct activity of most insurers. This has all contributed to an increasingly competitive broking environment. Consumers are more savvy and they understand brands and can compare prices online.

Consequently, smaller brokers that have traditionally relied on price comparisons to sell PMI are finding that this method is becoming increasingly redundant, as consumers are capable of doing this themselves. Brokers need to think about how they can add more value through advice to avoid the commoditisation of PMI, which will only serve to drive customers direct.

Entering the market

Why then would a non-specialist broker want to enter the PMI market today? The simple answer is that was then and this is now. Today, there are providers out there that offer new models - ones that have a sustainable, in-built solution to PMI inflation. These new products, which not only appeal to brokers' existing clients but have also attracted new consumers to PMI, pose a great opportunity for smaller brokers to really grow their market.

Previously, PMI was a fairly niche market, because people do not like to talk and think about sickness. However, lifestyle and wellbeing are different, they are big, topical issues, and people are prepared to spend significant money on them. Also, due to its relatively technical nature, PMI is best suited to an advice-sale. And frankly when a broker calculates how much of their existing book they could sell this type of PMI to, the numbers speak for themselves.

We believe that now is the time for smaller brokers to think about how PMI can grow their business. Increasing consumer focus on wellness means people are more interested in their health. You just have to look at the papers nowadays and compare the level of coverage on health with that of 10 years ago. However, this increased awareness of health, along with advances in medical technology - which means more drugs and procedures are now available - has served to increase consumer expectations and the NHS is struggling to keep up. The result is a large population that wants to consume quality healthcare - and who would pay for it if they thought it represented value for money.

Therefore, it is up to insurers to respond to the changing healthcare environment and to provide value for money to these people. This means broadening the appeal of PMI so that it no longer is just the domain of the wealthy or the sick but also includes middle-income earners and healthy people. The trick is to provide a product that delivers value to those who do not claim as well as those that do, while simultaneously helping and encouraging people to tap into their desire to live healthier lives.

This sort of innovative PMI provides smaller brokers with a huge opportunity - a new attractive product and a new market. Because of the broad appeal of health and wellbeing nowadays, most advisers will find that they already have appropriate clients on their books, it is just a question of targeting these clients with a PMI model that works. What is more, the technical nature of PMI makes it very well suited to advised sales - perfect for brokers who want to offer more to their clients than just a price-comparison service.

However, the same technical nature also means that insurers must work harder to support smaller brokers that do not have extensive experience in the PMI sector. For those brokers that do find a provider that can give them support, the market is a huge untapped opportunity.

The traditional private health insurance model has a number of flaws. First, there is an adverse selection problem. Young and healthy people, which insurers want to attract to keep the average premium down, do not buy PMI as they do not need it. This problem is exasperated when premiums go up. However, only having unhealthy people in the pool pushes premiums up further. Secondly, there is an under-consumption of preventative care. Customers have little incentive to take any preventative measures to improve their health - yet so many illnesses and diseases would be avoidable by people taking simple lifestyle measures. Thirdly, there is an over-consumption of treatment - because consumers are not paying for it directly, when they do need treatment, they want it with all the bells and whistles on, with no account of cost.

The new innovative models try to counter these issues - aiming to provide the best cover for the best price, which involves attracting younger and healthier people - while also providing an incentive to policyholders to develop and maintain healthy lifestyles. Products that work in this way move the debate away from sickness and instead towards health and wellness. They help to expand the market, both in terms of customers and brokers, as they are popular not only with people who have always bought PMI but also to those not traditionally regarded as the product's target audience. Partnerships with gyms, health spas and health screen providers, which offer customers big discounts, are of huge value to many people, so it makes the product appeal to a wider market and makes the sale a lot easier for brokers.

Providing incentives

To provide an incentive policyholders to improve their health, the most innovative providers have developed rewards schemes that are integrated partnerships with gyms, health screens and others. The idea is that these incentives will encourage members to improve their health and, so far, our figures show that it is working. On average, small to medium-sized enterprise clients see a 6% reduction in their premiums on renewal.

For advisers, the job of selling PMI will become easier as customer-engaged healthcare policies open up the market. PruHealth has seen that they are not just popular among the people who have always bought PMI but also to those who have not traditionally been seen as a target audience for the product. To give an example, 50% of PruHealth's individual customers are new to the market, with the majority under the age of 45 - a far cry from the typical PMI audience of a few years ago.

Choosing the right product will become a conversation between broker and customer around lifestyle and wellbeing - things that people like to talk about - not just sickness and treatment. Not many brokers could say that their clients would not be interested in a deal that, after a £25 joining fee, gets them gym membership at Cannons gyms, among others, for £25 per month, compared to the usual price of around £65 per month. What is more, there is the added benefit that customers could further reduce their premiums once they sign up with a provider.

Brokers need to capitalise on the appeal these innovative products hold for consumers and businesses. However, in order to do this, brokers need support - smaller brokers especially. This support should come in the form of training, marketing support and face-to-face account management.

Again, the most innovative providers have schemes already in place to do this. The new year is a great time for brokers to take on a new challenge and PMI should be that challenge. Providers have launched new and innovative products, capable of growing the market. They are putting their weight behind their products with advertising campaigns through Q1, which will raise awareness among consumers and should help warm them up. PMI is a great opportunity for a broker to offer an advice-based - rather than just price-based - sale, which should increase the profit per sale.