Group PMI

Last year saw sales figures for the group private medical insurance (PMI) sector begin to flag, reversing the trend of steady growth experienced between 1997 and 2001.

Now, twelve months later, sales seem to have reached a plateau.

"The overall private medical insurance market has remained fairly static over the past year," says Mark Noble, head of intermediary sales at Norwich Union Healthcare.

Figures from Laing & Buisson's Health & Care Cover UK Market Sector Report 2004 support this view, showing that the number of company paid subscribers went from 251,500 in 2002 to 251,400 in 2003, following a very marginal growth of 0.

4% in the previous year.

And real growth in company paid subscription income, deflated by RPI, even decreased by 3.

8% to 1.

9% in 2003.

Increasing demand There are a number of factors that have led group PMI sales to fail to reach the same levels as in previous years.

Weak economic growth following the Iraq war and the fact that many providers have realigned their corporate pricing margins to ensure profits are being realised, instead of using strategic discount pricing favoured in the past, have both contributed to the fall in demand for group PMI.

The Laing & Buisson report also suggests that the dampened sales of traditional company paid PMI could be partially blamed on the increasing demand from companies to self-insure medical expenses through trust funds.

This was particularly evident in 2002 when non-insured medical expenses schemes continued to increase while the group PMI market remained flat.

The recent gloomy sales figures have caused both advisers and providers to rethink their approach when selling group PMI and spurred them to re-examine other areas, which they have previously overlooked.

Notably, the SME sector.

In the past, the majority of group PMI intermediaries have focused on larger corporations.

Not only did they provide them with a larger amount of profit per company compared with smaller firms, but big businesses were also seen as being more likely to opt for group PMI.

In essence, big businesses traditionally meant big money for less hassle and until now, many intermediaries have to a large extent focused their efforts on satisfying the needs of the larger corporations.

This tactic worked perfectly well for a number of years.

However, this approach is no longer enough.

The large corporate market has become fairly saturated, and is now mainly providing advisers with re-broking and extending existing scheme business, but new business is scarce.

The result of this is mirrored by figures from Norwich Union Healthcare, which show that switch business accounts for 75% of total annual sales, while new business only accounts for 25%.

And the figures are similar across the industry as a whole.

While re-broking still offers good business opportunities, capturing new business is a must if the sector is ever to grow.

To buck this trend, the PMI industry needs to target the SME sector, which is the only segment of the market that is still, to a large extent, lacking PMI cover and could provide advisers and insurers with new business.

In fact, the SME market is now offering the greatest opportunities, something that several insurers have already picked up on.

Legal & General Healthcare is one of them.

"We are currently focusing on the individual PMI sector, but we are considering focusing more on the SME market as we do not want to be seen to be turning our backs on this sector," says Chris Rolland, managing director at Legal & General Healthcare.

Noble agrees that the insurance industry needs to close in on the smaller business market.

"We are starting to see some consolidation in the SME market, and this is where we are looking to grow," he says.

Indeed, it would be foolish to ignore this area, particularly as the overall group PMI market experienced a somewhat disappointing past twelve months, but sales in the SME sector have faired much better.

"There has been quite significant growth in the small group area, and we are now selling more SME contracts than ever before," reveals Noble.

Flagging sales And dealing with the SME sector means fresh business, which could eventually give the group PMI market the well needed push it is longing for.

Adrian Humphreys, managing director of corporate clients at WPA, believes the market needs to cover new ground if it wants to survive.

"Five years ago, 95% of our sales were switch business. Now, 95% of our sales are virgin business, with switch business dying on its feet," he says.

With this in mind, it is therefore vital intermediaries try to do more new business if the trend of flagging sales is to be reversed.

However, Noble points out that the opportunities offered by larger firms should also not be neglected.

"A significant number of large corporations may have cover for their key people, but they may need cover for their whole workforce and this could provide a great sales opportunity for advisers," says Noble.

That said, even though the SME market may provide intermediaries with a fresh target, there is still one big hurdle standing in the way of flourishing sales figures – the cost of group PMI.

"Premiums have continued to escalate and while this increase has been less aggressive on the group side of the private medical insurance sector compared with the individual side of the market, it has still been felt by employers considering the cover, and many of them are now considering whether they can afford to continue offering this benefit to their employees," says David Priestley, sales director at PruHealth.

Some providers have been trying to get around this by subtracting benefits from their group PMI offerings.

Priestly doesn't think this is the way forward, and argues that trying to bring the price down this way would only devalue the product.

Instead, he thinks that a group PMI policy should actively try to increase employees' overall health.

While this may increase the immediate cost of the policy, Priestly believes that "over the longer term it would keep the cost down by reducing absenteeism and increasing employee activity."

Disagreeing with this, Brian Mulreany, marketing director at Essential Healthcare, does not believe adding bells and whistles would incentivise employers to consider taking out cover.

"Price is still the main obstacle and reducing cost would stimulate the market, anything else is simply tinkering," he says.

Noble agrees.

"It is nice to have added benefits, but do they really add value? In the end, it is about getting the balance right," he says.

Expensive product Noble says that Norwich Union Healthcare's newly launched PMI product, Solutions, which is aimed at firms with between 10 and 250 employees, aims to achieve this balance.

The policy is flexible in that it allows clients to add or take away cover where needed.

For example, psychiatric care can be added or the choice of hospitals can be.

Or if they wish to reduce the price of the premium they can take out an excess or reduce the hospital list.

WPA has another approach to the cost problem.

The company has managed to reduce premiums by offering shared responsibility, where employees pay up to 25% of their healthcare costs, up to an annual maximum.

As Humphreys explains: "It is about taking responsibility for what you are claiming. And by doing that, the cost comes down."

But despite the fact that insurers believe their different propositions could encourage more employers to take out PMI cover, the majority of providers still forecast that the group PMI market will remain pretty flat over the coming year.

However, it doesn't have to be that way.

In fact, the market could be heading towards a brighter future if IFAs realised the opportunities offered by the SME sector.

Price may be a major issue for firms, and in particular for the smaller ones, but therefore, it is crucial intermediaries can show them that a PMI policy is worth every penny.

This should be helped by the fact that group PMI could provide their clients with a useful tool for attracting and retaining staff – something that is key for most employers.