Group PMI is in good health - last year sales trumped the rest of the health insurance and protection industries - but there are clouds on the horizon, writes Georgina Kenyon Click here to download pdf
It has been a great year for the group private medical insurance (PMI) market – the only sector of the health insurance and protection markets to see sales rise in 2005.
According to recent figures from the Association of British Insurers (ABI) released in late May, the number of corporate subscribers has increased from 2,614,000 in 2004 to 2,665,000 in 2005. This was also up on the previous year, which saw 2,603,000 subscribers.
The number of people covered under corporate plans also grew, with 4,854,000 people covered – up from 4,788,000 in 2004.
But while group PMI providers can pat themselves on the back for having had another successful year, experts are calling for caution, warning that sales may dwindle in the future as many employers believe costs are just too high.
"The corporate market grew significantly in the 1980s and 1990s but growth has levelled out in recent years. And due to the cost, employers are increasingly looking towards alternative cost-effective ways of funding healthcare benefits for the rest of the workforce," says Claire Bamford, healthcare adviser at Gissings Advisory Services.
The dilemma facing many firms is that there is a need to provide comprehensive yet appropriate benefits as well as managing spiralling PMI costs – with costs the main obstacle.
Dr Katrina Herren, head of corporate propositions at Norwich Union Healthcare, says companies need to think about joining together income protection and PMI purchasing departments to find a more cohesive and cost-effective approach to group PMI.
"More financial officers and chief executives of organisations need to think about how to offer insurance in a more organised way," she says.
Another obstacle is the lack of flexibility in the market.
Howard Hughes, head of marketing at BCWA, says that while sometimes group PMI is not taken up by employers because of cost, more often it is because people are looking for a level of flexibility not available in the product.
Hughes points to the self-employed market in particular. "Some of the key opportunities for advisers are among the self-employed.
"A large proportion of the self-employed market does not have PMI. We have to ask why this is so. And the answer is because what many of them are looking for is currently not available," says Hughes.
The fact that so many people are uninsured should lead to growth. Marco Bannerman, head of corporate sales at Bupa, believes the industry needs to find out whether it is the cost or the lack of options that is hindering sales. "There are currently 16 million people uninsured in the UK.
"We need to work out why they are uninsured and why their employers are not insuring them. Is it because the cost is too high or is it because they are wanting a different type of insurance that is not currently covered under PMI?"
Luckily, it looks like the industry is moving towards solving the problems, with both advisers and insurers predicting that there will be new product developments offering increased flexibility and bespoke plans coming on to the market over the next 12 months.
Providers also look set to further encourage people to look after their health, which will result in rewards and lower premiums. Employees' desire for a 'work-life' balance will also drive the flexible nature of plans.
Moreover, there will also be a move to healthcare trusts for employers with more than 400 employees, and a greater use of the internet for online sales and product development.
In general, there should be a more buoyant market.
Employers trying to manage absence levels will drive the market. Bannerman says: "Over the next few years we will see employers aiming to lower absence rates and a drive for 'work-life balance' from employees.
"People want a healthier lifestyle and also a more balanced one. We need to work out how to achieve this," explains Bannerman.
"This is part of a trend of preventive healthcare in general, where people take responsibility for their own well-being and health," he adds.
In terms of new entrants, the future seems bleak as the big players seem to have a strong hold on the market. "As the market continues to contract, there are fewer providers available to offer competitive rates based on traditional policy variables," Bamford reveals.
That said, there have been some new competitors such as PruHealth and Standard Life Healthcare also acquired the portfolio of First Assist and Groupama acquired Clinicare recently.
PruHealth's model has embraced the concept of encouraging members to look after their own health.
Besides product development, the industry is keeping a close watch on the development of cancer drugs and wonder drugs for other illnesses such as stroke and heart disease and how these will impact on the group PMI industry and claims. With an ageing population insurers are wondering how these new drugs will affect people's health and insurance plans.
More people will live to develop cancer and this is impacting on the need for people to take out individual PMI and for employers to consider group PMI.
Many health professionals believe that cancer services have never really had adequate investment under the NHS. The need for PMI for cancer care is significant, and this will be further highlighted by an ageing population.
Rachel Riley, director of business development at WPA Protocol, explains: "The future for group PMI will be influenced by cancer and the new 'wonder drugs'. When the press puts a spotlight on high claims for diseases such as cancer being paid out, insurers and employers take a great interest as to how this will affect them.
"Any other illnesses will also be of great interest to us, but it is cancer that is in the focus at the moment," she explains, saying, "it is partly because of new drug developments, the money being spent on drug development by pharmaceutical companies and partly because of the intense media focus."
So it may be that drug development or living longer may be causing employees and employers to think about PMI.
However, no matter whether that will happen, there is a strong need for advisers and insurers to sort out the real sales barriers to prospering growth for group PMI to become a strong and lasting contender in the protection market.
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