Further opportunity in the corporate sector and growing adviser interest has prompted the healthcare cash plan market to flourish, says Johanna Gornitzki Click here to download pdf
Last year proved a successful year for the healthcare cash plan market. So much so, several providers have even cited 2004 as the best ever year for the sector and forecasts suggest that the good times are here to stay.
This has not always been the case however. This upswing follows a four-year drought for cash plans, during which time the market was not only tainted by low demand but also haunted by poor sales figures. As revealed in Laing & Buisson's Health & Care Cover UK Market Sector Report 2004, not only has the contributor base fallen by 3% since 1999, but the broader picture shows the market has failed to grow for over 25 years.
Recent success
On the back of this, the news that the market is experiencing an upturn is a heaven-sent turnaround for this niche sector, which, despite having been around for nearly a century, still struggles for a place on the bench next to the big boys.
One factor that has led to the recent market growth is the changing nature of the healthcare landscape and its future provision. The rising cost of healthcare, such as a visit to the optician, coupled with the fact that it has become much harder to find free primary healthcare treatment has forced consumers to seek other alternatives.
That said, a large part of the market's recent success is not due to the fact that consumer demand is on the rise but that more employers have come under increased pressure to offer free or subsidised healthcare as a part of employee benefit packages. This has effectively seen sales of corporate healthcare cash plans soar, with the number of plans sold between 1999 and 2002 increasing from 246,000 to 446,000. A figure that looks set to grow.
Health-related absence among staff is the key factor driving corporate sales. The cost of sickness absence to business has increased significantly, and figures from the Confederation of British Industry (CBI) imply that it amounted to approximately £11.6bn in 2003.
Cash plan providers believe the product can go some way to help tackle this issue by taking away the cost barrier, which may hinder people from tending to their primary healthcare needs. As HealthShield's marketing director, Philip Wood, suggests: "Regular eye-sight tests can detect early onset of glaucoma and diabetes alongside other illnesses and early detection and subsequent treatment will have an impact on absenteeism levels in the workplace."
This belief seems to have spread throughout the corporate sector, and while the majority of company-paid cash plans used to be sold to larger firms, the interest in this market now seems to have spread to the SME sector.
"The reason for this is that those companies have come under increased pressure when it comes to absence figures," says Raman Sankaran, head of marketing for HealthSure. This is reflected in the provider's sales figures, which shows that sales to SMEs have increased by 150% since January 2004.
Stagnant market
But while absence figures may push employers to offer cash plans to their employees, some industry players do not think cash plans will reduce the absence level problem. "There is no evidence that providing healthcare cash plans could create greater productivity among the workforce," says Tina Jennings, business manager for the healthcare division at Towry Law.
Instead, she argues that the recent success of healthcare cash plans is due to the fact that they provide a decent alternative for those who cannot afford private medical insurance (PMI). While it should not be seen as a substitute, she admits that cash plans are often sold as PMI for the blue-collar market. "This is because private medical insurance is traditionally a white-collar product," she says.
Overall, healthcare cash plans are an easily affordable product, particularly as it can cost as little as £1 per week, per person. And although it may not decrease absence levels, it is a very visible benefit, which shows that the employer cares about its employees. In turn, this could create a positive morale among the workforce, something that is likely to indirectly improve productivity.
Unfortunately, the success enjoyed by the corporate cash plan market has not been seen in the individual sector. While still accounting for almost nine in ten cash plan sales, this segment of the market has remained more or less stagnant over the past years.
Cash plan providers admit they are somewhat to blame. "I guess insurers have failed to switch the IFA on," says Iain MacMillian, sales and marketing director at Standard Life Healthcare.
Traditionally, the majority of cash plans have been sold via the direct sales route. This is mainly because many advisers have been put off by the perception of poor commission levels and providers have not done enough to change that perception. "The ball is now in our court," says MacMillian. And indeed, providers wishing to get their hands on a bigger share of the individual market would be wise to give intermediaries the VIP treatment. "In order to target the individual market, we need the intermediaries because they already have built up a contact with individual clients," says Sankaran.
This message seems to have been taken onboard and several providers have now launched intermediary support services in a bid to make advisers more aware of the benefits cash plans can offer. HSA, for example, will be launching an intermediary support team as well as a new cash plan directed towards the intermediary market later this spring. Providers hope these efforts will convince advisers that their perceptions of healthcare cash plans are inaccurate. But does it hold true?
Wood thinks so. He suggests intermediaries could make a fair bit of revenue by advising their clients to opt for a cash plan. Explaining the possible earning potentials, he says: "HealthShield's premiums go up to £819 per year, per member, for corporate schemes, and £901.20 per year, per member, for direct scheme members. With commission offered at 20% of the first six months' premiums for HealthShield's corporate scheme; and 40% of the first six months' premiums for HealthShield's direct scheme, plus renewal commissions – an adviser can offer good advice to corporate and individual clients, while still covering their overheads."
Simple product
The propaganda drive launched by providers has improved awareness of the importance of cash plans among brokers. Some have also entered the market, but whether this will be enough to spur the majority of intermediaries to actually advise on the product remains to be seen.
The verdict given by advisers is that the direct sales route is likely to continue to hold its place when it comes to sales of individual cash plans. The advisory market will always tend to lean towards giving advice on more comprehensive healthcare plans such as PMI, and their clients – many of whom often tend to be fairly wealthy – are usually able to afford these types of products. From an individual's perspective, healthcare cash plans are often seen as a fairly simple product, which the majority of the population feel confident to buy without first seeking professional advice.
But while the individual market may be a dead-end street for intermediaries, the corporate sector could offer further business opportunities. Playing on the employers' desire to keep a happy workforce and absence costs low, advisers could do well to keep a finger in the corporate cash plan pie. It has to be remembered though, that sales of company paid cash plans still only account for around 15% of total cash plans sales. So while corporate sales will ensure overall sales trends continue to point upwards, it is unlikely this will transform the product into the next season's must-have.
External factors are more likely to incite dramatic changes, including any plans the Government may have about levels of primary care offered by the NHS. This is unlikely to happen anytime soon, but intermediaries need not despair because the interest shown by the corporate sector should be enough reason for them to hang around the sidelines and enjoy the humble growth in sales that is likely to take place in 2005. Soon enough, they may even be able to reap bigger rewards.
