Taking the pulse of PMI

The latest figures from the Association of British Insurers state that only 12% of the population (7.3 million people) is covered by some form of private healthcare cover. The figure represents a record level but there remains clear scope for the market — currently worth nearly £3.5bn in annual earned premium — to expand further. This is particularly the case as the rate of increase in investment in the National Health Service is unclear, despite both the Labour and Conservative parties being committed to not cutting spending in real terms from 2011.

Mike Izzard, chairman of the Association of Medical Insurance Intermediaries, comments: "Any person who is financially aware can see the next years will be challenging for the government to fund the NHS to the level it wants. The public knows that the NHS will take care of them in an emergency but the fear is in the other areas, such as waiting to see a consultant."

Into this breach comes private medical insurance. The opportunities are clear but, as Izzard points out, for non-specialists the situation is not straightforward. He says: "It is difficult to get an agency with all insurers as you have to produce a minimum production level and it is not as easy as it was five years ago. To be a success you have to be knowledgeable about what the client wants and technically proficient in comparing products."

Kevin Murdoch, senior proposition development manager at Aviva - the third-largest provider of PMI - also thinks NHS funding worries have affected the PMI market positively and will continue to do so. He says: "Funding of the NHS has turned thinking around."

The insurer has found that, despite the challenges of the recession, it has continued to see growth ahead of targets in PMI and ascribes this to its flexible approach. Murdoch continues: "We can be flexible as we have a modular approach where small and medium-sized enterprise schemes can increase and decrease levels of cover. Flexibility is really important as people naturally want more cover for their money."

Dieter Clausnitzer, head of corporate healthcare at Oval, explains these flexible ways to help clients manage their budgets, like opting for delayed cover that starts only if the NHS cannot meet the needs within a set time period. He says: "People are looking at larger policy excesses. You can source a plan for an amount by changing excess, increasing exclusions and having a six-week delay clause."

Competitve

Claire Ginnelly, head of business development at Groupama Healthcare, agrees that offering brokers the ability to be as flexible as possible has been key to helping during the downturn. She highlights the importance of this given that Groupama is quoting to more brokers on the same piece of business, and that brokers are finding it hard because there is more competition.

She says: "It is taking a lot more time to hang onto the business we have. We are not finding lots of customers looking to scale down benefits, they are looking to reduce premium."

The decision to decrease premium has come instead of a removal in schemes. She explains: "It is a difficult message to staff to take away elements of a policy. PMI has always been a price-sensitive market. Insurers have always had to be competitive, not always the cheapest. Now the proposition has to be good and you have to be very competitive on price."

Marco Bannerman, head of intermediary management and affinity sales at Bupa, confirms that multiple requests for the same information are occurring more regularly than ever before. "Intermediaries are coming under review," he comments. "Multi-appointments show clients are desperate to get best value for money."

Overall, he recommends that brokers continue to focus on value for money: "To advise clients you need to understand their needs: do a thorough fact find and ensure the client has appropriate budget — don't focus purely on price but best value for money."

To offer flexibility, Bupa, which sells 70% of its corporate business and 28% of its individual offering through the brokered channel, is able to remove elements of care, for instance cancer cover.

Bannerman says: "We have the flexibility to remove it but are not being asked to by many clients. Not giving cancer cover is going to be the hardest conversation the human resources people can have with their staff. What we are seeing is an increase in excess and a reduction in outpatient allowance."

It is widely accepted that private medical insurance was slow to be affected as the economy went into recession and will be slow to pick up when it comes out. By definition, clients need to lose staff or cease to trade before they shrink or close schemes and will only increase coverage after the recession has ended.

Mike Blake, compliance director at Northwich-based PMI Health Group, confirms the specialist broker has also noticed the effects but, overall, schemes have tended to shrink rather than disappear. He explains: "We get clients to see the medical insurance cost in the round: for instance removing one element can inflate the price of a different element. Clients end up reducing overall costs by reducing numbers but the effect is the unit cost goes up." To combat this Blake believes quality of service is key: "Best service means a good supportive service, it is a claims-intensive industry, you need to be able to support clients through claims procedure and provide administrative support for membership changes." Looking forward, Blake feels 2010 will be more of the same with a reduction in numbers within, rather than the removal of, schemes.

Further figures recently announced by the Office for National Statistics highlight the potential for growth in the PMI market. According to ONS, the population of the UK could rise to 71.6 million by 2033. This growing and ageing population — ONS also pointed out that there are currently 1.3 million people aged 85 and over, by 2033 this is predicted to rise to 3.3 million — will undoubtedly put extra pressure on NHS budgets.

Fergus Craig, commercial director at Axa PPP Healthcare, points out that the ageing population will be an important element but is not the only one. He says: "Cost is going up higher than inflation by 6-7% a year. An ageing population is a problem for the NHS, but high unemployment and tax rates going up also give us a problem."

The complicating factor of rising costs is that in previous recessions inflation has led to high interest rates which, in turn, have led to an economic contraction. In the "credit crunch", the Bank of England has in fact lowered interest rates to 0.5%, which is bad news for savers. He continues: "Older people living off savings are finding interest on savings is disappearing which creates a squeeze on disposable income. It is going to be a tough couple of years and I expect PMI to contract 3-4% over each year over the next two years before stabilising."

Nobody has a crystal ball but the longer-term prognosis for PMI after the stabilisation is of the ageing population being a potential opportunity.

Murdoch says: "An ageing population could lead to greater take-up for younger ages. As NHS budget is potentially used for older generations, it could mean more moves for top-up and self-pay schemes."

The impact, as Marco Bannerman adds, will be on companies as well as the younger generation. He says: "If legislation changes, employers will have an ageing workforce and people may be working into their 70s. We will have to be innovative and creative to meet their changing needs."

The area of cashplans is one that the market overall is already using to meet clients' needs, albeit in a complementary manner rather than as a replacement. Jack Briggs, intermediary sales and marketing director at Simplyhealth, explains: "Our belief is, in recessionary times companies are looking at products suitable to their budgets and about one-third of human resources directors are looking for more tangible benefits next year."

As changing excesses has become even more popular, so cashplans have also come to the fore. Briggs explains: "With a large excess you can sell a cashplan and finance that from imposing the excess. It gives tangible benefits, it shows employees the company still values him or her, and often they can claim the excess through the cashplan."

According to independent analysts Laing & Buisson, at the end of 2008 a total of 4.72 million people were covered by health cashplans which equals 7.7% of the UK population.

Lara Rendell, marketing manager at Health Shield, the not-for-profit specialist healthcare cashplan provider, says cashplans are the perfect complement to PMI: "Staff see the benefit of a cashplan straight away when they visit the dentist or the optician. Previously it was seen as a blue-collar product but now people realise it is for all."

The company, which only sells to businesses from sole traders upwards, recently switched to the brokered route. Rendell explains: "We recognise the value brokers can bring to us and have focused on the market with a dedicated team and literature. There is still a lot of room for growth. People are more conscious about looking after themselves and living longer."

With an ageing population, fears over NHS funding and a track record of innovative high quality advice, the ongoing focus by brokers on the merits of these crucial products augurs well for the health of PMI in the future.

Number of private medical insurance holders

Private medical insurance (2008): 6,224,000 of which corporate policies 4,571,000 (+5.3% on 2007) of which individual policies 1,653,000 (­0.6% on 2007) Healthcare Trust Arrangements (2008): 1,111,000 (-2.22% on 2007)

Source: ABI

Top 10 PMI providers

2008 (2007) Health insurers 1 (1) BUPA 2 (2) Axa Insurance 3 (3) Aviva 4 (4) Standard Life Healthcare 5 (6) Western Provident Association 6 (7) BCWA 7 (5) Cigna International 8 (8) Groupama Insurances 9 (10) Exeter Friendly Society 10 (11) Prudential Assurance Company Source: ABI