Contrary to advancements in private medical care, the PMI market is lagging behind. Alistair Sclare explains why, without input from the entire industry, it risks a technological gridlock
Thinking of private medical insurance (PMI) conjures up images of the best medical care money can buy, delivered by professional practitioners working in highly efficient teams and doing whatever is necessary in the interests of their patients. Doctors and specialists on tap with the latest facilities from the forefront of medical science both academically and technologically. And why not? After all, this is why PMI is bought.
It is intriguing how many of those same people realise that the insurance element of this service is still a long way from the cutting edge of technology in its own field. Because the PMI market is not very efficient at all and despite the requirements of the regulator in terms of Treating Customers Fairly, it appears, on too many occasions, not to consider the needs of the customer as it is expected.
This is not to suggest that the market does not offer a valuable service. On the contrary, with loss ratios consistently in excess of 75%, it is clear that a significant proportion of customers' money is being paid back in claims and this is a level that easily stands comparison with most classes of general insurance. A brief look at the calls to reduce commission levels to 30% in other markets puts that figure much into context too. So why is it that the PMI market is not currently 'pulling up trees' in terms of technology? Indeed, why should it?
Looking at the process for obtaining quotations and renewals in the small to medium-sized (SME) market for PMI, most would assume this is a relatively simple transaction and one where the industry invests a great deal of time and effort.
It is common knowledge that the majority of SME business in the PMI market is annually put out for quotation in the broker market. It is also the case that 85% to 90% of it stays with the holding insurer every year. In simple terms, this means that it takes about 10 times more administration to move the groups that choose to change carrier. Surely this is a pretty good reason for the market to be as efficient as possible?
Easing the way
In most instances where this degree of quote turnover exists, there is an automated method of collating and transferring the required information and quotations. For example, it could go via a proprietary software system, the industry's i-market initiative, or through direct links with insurers' systems where general insurance brokers can already input such data once and receive quotations back quickly and accurately.
No such options are in regular use in the PMI market. As a consequence, hard copy, email, fax and phone are used to pass details between insurers. There is a significant risk of error and duplication is rife. So why is it that PMI has fallen so far behind other classes of insurance and what is being done to change it?
There have been several attempts in the past to get quote comparison sites off the ground and at least one has been operating for many years, although the volume of business being transacted remains low. Elsewhere, Polaris has recently shelved plans to bring an industry electronic trading solution to the market.
Stuck in the past
Launched in 2006, Polaris' initiative backed by a number of insurers and supported by the Association of Medical Insurance Intermediaries. The aim was to produce a system based on the needs of brokers and insurers with the potential to ultimately be developed to accommodate electronic data interchange. By all accounts, with brokers and intermediaries involved and the knowledge of Polaris, it should have had a good chance of success yet it came to nothing with the managing director of Polaris suggesting that despite the obvious benefits, the market did not seem to have the appetite for this type of initiative.
Then around a year ago, Healthcode, the company that provides the systems to transfer information between insurers and hospitals, launched another attempt at getting something off the ground.
Healthcode has many PMI insurers among its shareholders and, in launching this initiative, it was suggested that one of the key reasons why previous attempts had floundered was due to the aspirations of intermediaries being too great when insurers were expected to provide the funding.
This system would 'consider the needs of intermediaries' but, as it was being driven by a likeminded group of insurers, would not get bogged down in the way that the Polaris initiative ground to a halt. Interestingly, the Polaris view was that it was always the insurers themselves that were not ready to change. But at least things seemed to be moving forward.
Indeed, in early 2008, Healthcode had six insurers committed to development and it had begun to meet and establish the requirements of the new system. Its priorities lay in developing its own systems to facilitate the increased cross-selling of products and comprised all the key players apart from Bupa. So, in the event that they participate on a single quotation platform, it would present a very attractive business proposition for any PMI broker.
Six months down the line and three of those insurers withdrew. Although two remain interested and may yet heal the rift, Axa's departure was pivotal, given their status as one of the two players controlling 60% of the PMI market. Only Axa knows the precise reasons why it withdrew but it is a real shame as it had been very supportive and engaged with the idea.
It is here that the ongoing market debate around the need to release claims experience for SME business raises its ugly head. Axa has traditionally been opposed and says its refusal to share information is for "commercial reasons". Could this be why it is no longer involved? Perhaps on the basis that it would not be in its commercial interests to support a system that would effectively facilitate the efficient transfer of business from one PMI insurer to another?
But given Bupa's lack of involvement, is this the real reason why these trading systems have not been successful in penetrating the PMI market? The involvement of the two dominant PMI players is a key to success but why should they vote for any initiative that might make it easier for clients to move away from them?
Quite how this meets with the FSA's edict to see customers treated fairly is a different matter but it seems clear that the absence of claims experience must make it very difficult for brokers to do a proper job of looking after their clients' interests.
Pressing on
Pleasingly, notwithstanding the recent insurer departures, Healthcode has continued with the development of its system. The remaining insurers BCWA, Standard Life Healthcare and Groupama Healthcare still believe a system that will increase efficiency, quality, productivity and competition in the market has to be a good thing. Brokers are now being consulted and hopefully in due course the system will come to fruition.
It will be a real step forward and a genuine attempt to make life easier for customers, brokers and insurers reducing administration and the opportunity for errors to be made, increasing efficiency, and speeding up the renewal process. Insurers and, in particular, brokers will be able to concentrate on servicing the needs of their clients, rather than collating masses of paper before they even get started.
Everyone seems to understand the need for change and the benefits that it can bring for all concerned. Sadly though, some in the market seem to be more concerned with matters of self-interest than with the interests of the brokers that support them and the customers that they insure.
Compare this to the innovation and change being wrought in the medical world that we fund where there is little doubt that the patient always comes first.
Alistair Sclare is head of healthcare underwriting at Groupama Healthcare.
