While industry experts are far from overjoyed about the performance of the group PMI market, it is still significantly less stagnant than the individual sector, writes Lucy Quinton Click here to download pdf
After experiencing booming sales figures in 2005, the group private medical insurance (PMI) market saw slightly more conservative results last year. According to statistics released by the Association of British Insurers last month, the number of corporate subscribers rose from 2.25 million in 2005 to 2.35 million in 2006.
Experts, who last year called for caution following the positive sales figures, have been proven correct as the market is stalling because many employers believe the cost of group PMI is just too high.
Adrian Humphreys, managing director of corporate clients at WPA, says: "The bottom line is the market is stagnant and people are focusing on the cost rather than customers. There is a need for genuine innovation".
According to Alistair Sclare, head of healthcare underwriting at Groupama Healthcare, from an insurance provider's perspective, the competition has become greater in this arena. "The pressure is really on to be ever more efficient; to reduce prices as the competition chase small to medium-sized enterprise (SME) business even harder; and increasing service standards for clients but also for intermediaries who control this business segment," he says.
Unexpected
The manner in which this market appears to be stalling is somewhat surprising because Julian Ross, head of policy communications at Standard Life Healthcare, says that businesses continue to buy health insurance for their employees and the importance of getting people back to work quickly remains the key purchasing driver in addition to it still being viewed as a highly valued staff benefit.
However, medical inflation is still a concern for employers wishing to retain their health cover while keeping a lid on costs, he explains.
Elliott Hurst, senior consultant at Watson Wyatt, agrees, adding that not only is cost an issue but raised expectations of customers in diagnostics and treatments were significant factors that the market should expect to have to deal with over the coming year.
Nye Jones, distribution development director at Axa PPP Healthcare, says it remains a challenge for insurers to continue to provide cost-effective cover in the face of increasing claims costs which, he explains, is "driven, rightly, by customers continuing to take advantage of the constantly increasing availability of new and often expensive medical technologies and treatments".
At Axa PPP Healthcare, there is a proactive approach to purchasing healthcare services and to managing the cost of claims to help keep the costs down. "For instance, we negotiate with hospitals for their services and we have established a national network of 'preferred providers' that our team of medical experts has chosen for their quality, value and range of services," he adds.
However, the biggest challenge the group PMI market will face is how to deal with the topic of cancer and its cost. Experts predict that this will be a major issue over the next three to five years.
Sclare adds that innovation from an insurance providers' perspective will be how they respond to the development of more treatments for conditions such as cancer, where the treatment is designed to control rather than cure a condition. "There could be much innovation here and it could potentially lead to a change in the way PMI is perceived. From what is basically a 'fixing' product, it may evolve to become a preventative one," he adds.
Challenge
Another dilemma is the failure of the NHS, which is proving to be a real opportunity for the group PMI market. The disintegration means that customers have to face putting their hand in their own pocket and pay for treatment.
In addition, Hurst says there is an ageing population that is not used to claiming and once they see how easy it is to claim they will do so repeatedly. The maturing market is also putting an increasing amount of strain on a limited budget. The same amount of money has to be stretched to cover a greater proportion of people.
Furthermore, cancer is seen as a disease of the older generation and the market is about to witness a greater percentage of people getting older than ever before thanks to the baby boomers of the late 1940s.
Humphreys says: "The industry is evolving too slowly to make the most of the failing of the NHS. Tinkering with what has been offered in the past is not an option if one wants to thrive."
Ross says that advisers should really persevere with this market because it is ever-changing. While, on one hand this means that it could be hard work, on the other it means an effort should be made as it is still "a vibrant sector that can bring significant rewards for advisers," he says.
The market is reticent to acknowledge any product innovation in the group PMI sector, although WPA recently launched mycancerdrugs in response to the spiralling cost of cancer drugs.
Humphreys is quick to point out that WPA's mycancerdrugs insurance cover, which was launched at the beginning of Q2 this year, is available to the corporate market. It provides cover for cancer treatment not available on the NHS and pays for drugs like avastin. It was developed following YouGov research that found nearly three quarters of those surveyed would be willing to pay for extra cancer care.
In addition to this product, at the beginning of 2007, Standard Life Healthcare upped its game in the group PMI sector and launched its Guided Options. "This offers employers the opportunity to cut their premiums by 15% without cutting their cover, providing their employees follow a new treatment referral path at a select group of hospitals from Bupa, Capio and Nuffield," Ross explains.
Responsibility
He adds that the key change here is that instead of the GP choosing a patient's consultant, the hospital does so and then manages the treatment from start to finish – enabling the hospital to make better use of their resources, meaning lower charges that, subsequently, Standard Life Healthcare passes on to the customer in lower premiums.
In order to continue on a high in this market, Standard Life Healthcare is also looking to launch a new SME proposition that offers customers the opportunity to pick and choose cover to suit their budget. Ross says he hopes it will "enable advisers to offer more choice to their customers and will include elements that can be extended out to a wider employee population." Therefore, while a medium-sized company may only offer PMI to their managers, there will be the added advantage of extending that remit out further to their other employees.
Hurst has a positive outlook on the past year saying that, in the corporate and company sector, there has been some expansion but, unfortunately, that growth has been in single figures.
However, Jones says that providers are increasingly raising their game and employers are starting to appreciate that there is much more to managing health at work than just paying bills for treatment when people are off work ill or injured.
"In a business world that is increasingly mindful of risks, providers and intermediaries experienced in the field of health at work will continue to help companies take a more holistic approach to managing their people's wellbeing through better integration of healthcare funding, occupational health and employee support services," he adds.
Benefits
The benefits of having PMI do not just lie in the providers' pockets. In the workforce, there is a growing shift by employers to provide PMI for their employees in a bid to ensure that they are seen to be looking after their workers properly.
It is no longer justifiable to just have group PMI to ensure that there is adequate money available when the employee becomes sick. Instead, employees are looking for additional add-on benefits such as subsidised gym membership. Having PMI, though, is vital for the continued success of a business as having healthy employees means there is less chance of them being absent from work. Employees are also likely to remain loyal to an employer that looks out for their health.
Looking at the group PMI market from a historical point of view, this sector has always played victim to socio-economic trends. According to last year's Laing & Buisson UK market report, Health and Cover, the post-war boom in PMI had been interrupted on two separate occasions. The first was in the 1970s when it was interrupted by rapidly rising PMI prices and a loss of confidence brought about by the Labour government's attempt to phase pay beds out of the NHS.
Again, the second time the market felt its belt tightening was at the beginning of the 1990s when there were yet more rapid PMI price increases that coincided with the economic recession. Sound familiar? On an optimistic note, what this suggests is that there is hope that this market will recover as it has done so in the past and providers certainly seem unwilling to give up on it.
