PMI penetration hits lowest rate in 20 years - Laing and Buisson

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Overall penetration of the UK population by private medical cover has hit the lowest rate in more than 20 years while employer-paid cash plans buck the downward trend, Laing and Buisson has reported.

This year's Health Cover UK Market Report estimated the individual PMI penetration rate at 10.9% showing a notable downward slide in demand.

The number of individual paid policies decreased by 4.2% in 2011 following similar strong falls of 4.6% and 3.7% in 2010 and 2009 respectively; and has moved under 1m for the first time in recent times.

It follows a sizeable contraction in policy numbers of just under 8% overall during 2009 and 2010.

The good news story is a modest return to growth in company-paid medical cover policies which increased by 1.2% in 2011. This follows drops of 3.3% and 4.7% in 2010 and 2009.

The overall number of private medical cover policies edged down marginally by 0.2% in 2011 to reach 3.971m at the start of 2012.

Philip Blackburn, economist and author of the report, said: "Some headline stability in demand for private medical cover looks to be welcome news for the industry, at a time when the economy is struggling to grow at all.

"However, on closer inspection certain trends are likely to create anxiety. Record low take-up of private medical cover by individuals, despite a wide choice of low cost policies and downgrade options, highlights continued vulnerability in this area."

Insurers confirmed that premium increases have moderated to some extent in the last 12 to 24 months and will likely average 5% to 7.5% per year.

Policy downgrading and lower cost policy options for customers has kept a lid on average policy prices, the report said.

Claims paid on private medical cover policies decreased by 3.6% in real terms in 2011, which left insurer underwriting margins in a better shape in 2011, averaging 22% from 21.5% a year earlier.

Blackburn added improved economic conditions and a likely dip in NHS performance may halt and possibly reverse the trend.

"Ensuring comprehensive private medical cover is affordable to a wide customer base is an ongoing challenge for insurers," he said.

Meanwhile cash plan contributions decreased modestly by 1.5% in 2011 to reach 2.593m at the start of 2012.

But employer-paid contributions bucked the downward movement growing strongly by 13.5% in 2011 to 0.51m - more than doubling over the last five years.

The drop in average price was down 14% in real terms, Laing and Buisson reported, as cash plan providers competed strongly on price to attract new employer paid business.

Demand for dental cover appeared the strongest during the current weak economic climate. The number of subscribers to stand-alone dental benefit plans increased marginally by 0.6%.

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