Despite 10 consecutive years of falling subscriptions, those in the private medical insurance market remain optimistic. Georgina Kenyon investigates their reasons for being cheerful Click here to download pdf
The individual private medical insurance (PMI) market has met with another dismal year and it would take a brave statistician to say the industry was not suffering.
That said, many insurers and advisers remain optimistic that opportunities lie ahead for sales to turn around. With an ageing population and the reasonable assumption that more people will be looking towards PMI as they get older, insurers and advisers are far from giving up on this market. The burgeoning trend for people to start looking after their health from a younger age, before medical conditions emerge, is also raising the profile of individual PMI among consumers.
Yet despite these developments, recent figures from the Association of British Insurers (ABI) suggest the number of subscribers and persons covered under individual PMI policies have been falling every year since 1996. Back then, the number of people covered under individual PMI was 2,299,000; in 2005 it was a mere 1,695,000 – a drop of 604,000.
While there is no denying the market has seen a drop, Tim Baker, commercial director at Norwich Union, urges people to put the figures into context, arguing that "sales may be falling but only marginally".
"We also have a very committed set of customers who will remain in this sector," assures Baker.
There seem to be two reasons behind the decline in individual PMI sales: the success of the corporate PMI market and people having more confidence in the NHS than has previously been suggested.
Jonathan French, press officer at the ABI, believes this to be the case, saying "sales of individual PMI may well be falling because the number of people who had their own individual policies may now be covered by their employer's policies, as corporate policies are on the increase".
In short, no one needs to be covered by two different policies and more people are qualifying for company-paid health insurance, he explains.
Negative opinion
French also argues that the fall in individual PMI could be due to increasing confidence in the NHS. "Generally speaking people seem to have a negative opinion about the NHS, but often surveys show that when people are asked very specific questions about it they think the NHS is adequate," French says.
So what can be done to increase sales of individual PMI? Some experts say the cost of individual PMI needs to be addressed to turn figures around. Baker cites that up to a 50% cut in costs may be needed to seriously increase sales.
Sharon Jordan, marketing development executive at Cigna HealthCare, agrees. She says: "The main obstacle in the individual PMI market is the perception of highly-expensive premiums."
The long-awaited cut in premiums is a must for the industry. According to Laing & Buisson statistics, the average individual subscription income per subscriber in 1996 was £683. By 2003, that figure was £1,224 – almost double the amount.
But the good news in the individual PMI sector is that the growing demand for wellness products is having the much-needed effect of reducing premiums. Some would say this was a happy accident, with very promising results. With people maintaining their health and foreseeing necessary treatment, less people need to claim so premiums can be reduced.
Phillip Taylor, managing director of Preferred Medical, says this is one real reason why lower premiums are becoming a reality in the insurance industry.
"This is a very exciting time for the individual PMI market. Premiums are coming down and there are a lot of innovative products coming in," he says.
"Wellness products are becoming popular and they reward people for staying healthy. As a result, premiums are coming down," Taylor adds.
He maintains that many people are monitoring their health and going to the doctor earlier than they used to as a result of the trend towards preventative medicine – throughout the insurance industry and the medical profession. The fact that there is a lack of 'wellness services' available on the NHS is providing insurers and advisers with a niche opportunity.
Baker agrees: "There is a big gap in the NHS for wellness products. People are wanting to look after their health before they need treatment and there is not much scope for this on the NHS."
Further growth in the individual PMI market is also predicted due to an increase in public-private partnerships.
Baker predicts that there will be a growth in this area, similar to what has happened on the continent, such as The Netherlands, in particular when it comes to 'top up' arrangements. This is an arrangement where the consumer, through their insurance policy, helps to shoulder the cost along with the public health service.
Product developments are also likely to drive the future of the market, with more products being created targeting specific groups.
With an ageing population and the trend for people to traditionally take out PMI after the age of 40, it is not surprising that many insurers are bringing out products aimed at the over-55s market. For instance, Standard Life Healthcare launched Esprit Health in January this year, specifically targeting this age group.
Other products are targeting the younger end of the market, such as Exeter Friendly and its launch of GoPrivate Health Plan.
Strong demand
Flexibility is also the buzzword in the individual PMI market, with a strong demand from consumers for modular plans. This was reflected in the launch of BCWA's Personal Health module offering five basic options. However, like many of these new products, flexibility comes with the usual small print. In this instance, treatment is limited to a total of £50,000 over the lifetime of the policy.
Insurers and advisers have mixed feelings about whether or not new providers will enter the market. Some believe that it is more likely to be a market place of consolidation rather than new providers.
However, other experts, like Jordan, point to new contenders such as National Deposit.
Baker foresees that new products in the corporate PMI market will drive product development in the individual PMI sector. He also predicts further interest from overseas insurers in developing public-private partnerships – in the corporate PMI sector and then the individual PMI market.
"It is likely that large insurers, for example in the US, will continue to show an interest in the NHS here," says Baker. He explains that any developments from such public-private partnerships will then aid the development of individual PMI partnerships and general trends in product development.
This spells great news for intermediaries. "There are opportunities for advisers, although the relatively low commission rates associated with individual PMI may be off-putting," admits Jordan.
He also believes there are very significant opportunities to sell PMI in the small and medium-sized enterprise market.
Taylor agrees there are many prospects for intermediaries.
"There are many opportunities for advisers at both ends of the age spectrum. Wellness products are very popular with the younger market while there are also new products aimed for the over 55s."
"There is a wealth of opportunities out there for us; along with wellness there are low claims and no claims arrangements and a whole range of new products, providing people with flexibility," says Taylor.
"The individual PMI market is in a state of regeneration," he concludes.
So although the figures speak for themselves, when it comes to the slow decline of individual PMI sales it would be wrong to say that the market has fallen from grace or even from the limelight.
With some new innovative products and an increasing interest in the UK market from overseas, individual PMI is still a strong contender in the health insurance industry. The challenge to the sector is how to continue to significantly cut costs and deliver a sound range of truly innovative products to an ageing and increasingly demanding population.
