Medical inflation has risen year on year and currently sits way above general inflation. David Priestley believes it is time for the PMI industry to beef up and consider its options for future growth.
Patient demand, driven by increased knowledge of options and by less healthy lifestyles, are adding to the pressure.
The global economic recession may also be a contributory factor as policyholders take advantage of cover while they can still afford it, or while they still have a job that provides PMI. There may also be increased anti-selection, where health insurance is taken out by customers who are more likely to make claims due to poor health.
In addition, as the benefits of traditional PMI are focused around claiming, there are fewer reasons for healthy people to continue to buy PMI if they feel premiums have risen beyond their means.
The second and arguably more influential factor is the rocketing cost of medical treatments. This is a combination of the general cost of inflation in paying for the cost of medical staff, the introduction of new life-saving or life-prolonging drugs such as Herceptin or Avastin, and developments in procedures such as robotic surgery. All of these ground-breaking advances in medical science come with a cost attached.
There are also fears among some in the industry that the current programme of NHS reform will further fuel medical insurance inflation as the changes come into force and we see the increased use of PMI.
In general, health insurers have been successful in managing some of these drivers. Measures taken have included introducing mandatory claims pre-authorisation, managed care protocols, hospital and consultant networks and, more recently, open referral. Also included were tighter negotiations with both hospital groups and consultants around the cost of providing care.
While there is always more that can be done to manage costs, it is debatable whether these strategies will have any long-term effect on the current medical inflation trend.
Choice and differentiation from the NHS have always been key drivers of health insurance sales. There is a fine line between effectively managing costs and restricting things so much that customers fail to recognise the proposition’s differentiation or its value.
This is accentuated if the NHS is perceived to be performing well, which it has been in recent years.
CONTROLLING UTILISATION
Benefit design also has its role to play by controlling utilisation through the introduction of excesses, co-payments or six-week options. Alternative options include limiting exposure to high claims costs. This could be through the introduction of annual benefit caps, such as outpatient limits, or time limits on high-cost drug treatments such as targeted chemotherapies.
Modularity is also now commonplace in the market and is a great example of how the industry has responded to greater customer demand for flexibility.
Customers are allowed to pick and choose the benefits that are most relevant to their needs at a price that is affordable.
Disappointingly, it is common for customers to either choose, or be led to choose, either the most comprehensive cover options or not buy health insurance at all.
No one wants to be ill, and conversations around cost management or cover restrictions are always going to be difficult when people are at their most vulnerable. However, there is a simple and obvious approach to managing future medical costs that is, by and large, missing from the market.
Rather than trying to manage risk at the point of claim, surely it makes more sense to manage the one thing that represents the biggest risk to customers’ current and future health: namely their lifestyle?
So-called lifestyle diseases, such as cardiovascular and respiratory diseases as well as cancer, account for a significant proportion of claims paid, and will continue to do so. At a time when a number of key providers have encouragingly enhanced their cancer cover, there is a cost implication.
Research suggests that the cost of diagnosing and treating cancer in the private sector is set to increase by 65% to more than £1.3bn by 2021. No traditional approach to cost containment, no matter how sophisticated, can manage down predicted cost inflation such as this.
Looking at the statistics, we can see a clear rationale behind helping people to manage and improve their health by making it easier and cheaper for them to do so, and rewarding them when they do. For example, 40% of cancers are lifestyle related and nearly 50% of healthy years lost are also lifestyle related.
COMING OUT FIGHTING FIT
On a more positive note, participation in moderate physical activity alone could reduce an individual’s risk of premature death by 30% to 40%. And when you ask consumers what they expect from health insurers the message is clear: the overwhelming majority (93%) agree it is important for health insurers to help their customers manage and improve their health.
There is also clear demand for a more holistic approach to health and wellbeing. Research shows that since the 1980s, consumers have consistently ranked staying fit and healthy as being their biggest concern.
Employers are also increasingly aware of what they need to encourage their employees to do, whether it be eating healthily, exercising regularly, reducing stress or attending a health screening. So, if the demand is there, the health insurance industry as a whole has an obligation to fulfil this demand.
The more health insurers can evolve their propositions to help their existing customers reduce their own health risks, as well as attracting healthier customers back in to the market, the more we can dilute the impact of claims made by a few on premiums as a whole.
The benefits for those who need to claim is that health insurers can continue to provide the depth of cover they need. Those who don’t need to claim have health and wellbeing benefits that are immediately relevant to their current health needs. In this scenario, premiums remain both affordable and sustainable.
It sounds simple, but it requires a fundamental shift in approach from many of the leading distributors in the market. Insurers and brokers need to work together to break out of the cycle of switching and invest in attracting new-to-market customers with a more positive message.
Above all, we need to think differently. If we simply continue to adopt the same strategies and promote the same traditional products to customers, we should not expect anything to change and continued market contraction seems inevitable.
But if we embrace new ideas and commit ourselves to strategies aimed at broadening the appeal of PMI to a wider audience, we can create a market that will genuinely meet the needs of customers for generations to come.
David Priestley is sales director at PruHealth
