As the general insurance sector looks on in amazement, the private medical insurance market is still passing the buck when it comes to sharing claims experience, writes Alistair Sclare
The private medical insurance (PMI) market has a good track record for taking its regulatory and moral responsibilities seriously. The latest initiative in respect of cancer cover, common definitions and the code of practice for selling individual PMI, which have been in place for some years now, are but a few examples of areas where concerns have been pro-actively and effectively addressed.
So, why has the industry never confronted what is, by anyone's measure, a very clear breach of its declared aspiration to treat customers fairly? That is, the virtually industry-wide practice of withholding claims experience from both brokers and clients.
"You do what? Are you serious? Does that really happen?" are just some of the comments coming from colleagues in general insurance, interspersed with looks of utter disbelief and then followed by the question, "how do you ever write any business?"
When the laughter and derision has died down, the really serious questions start. They come by means of questions or statements, but there are three key ones:
n "What on earth do policyholders think about it?"
n "No broker in the general insurance market would do business with an insurer that behaved in that way."
n "Has the PMI market ever heard of Treating Customers Fairly?"
They are right. And there is no doubt that the PMI sector is getting it wrong. As an industry, this is a real issue and it needs to be sorted out. There are many voices shouting about it very loudly, but even those in the industry doing the shouting may have to hold up their hands and plead guilty by association.
So what is this all about? Is it really that bad and what effect is it having on customers? Let's be clear, even in PMI, this does not affect the whole market. The sector has three markets in PMI - individual, small-to-medium-sized (SME) (age-related) and corporate (claims-related). They should be considered separately, and this is part of the problem.
In the individual market, with the exception of the possibility of a member of the family making a claim on the policy that the main policyholder does not know about, it is reasonable to assume that the policyholder knows what claims they are making. They may not know the exact amounts being paid, but they will have a reasonable idea and the ability to find out. So, in this market, claims information is available. It is also being used in a steadily increasing switch market, where a policyholder must declare claims history to obtain the best terms.
The corporate market is not unlike the motor fleet market, administratively, and so are the practices, although there is no agreed format for the provision of claims information. There is an Association of British Insurers agreed standard for this in the fleet market, but the claims information is provided on a regular basis and is used by the policyholder, broker, holding insurer and quoting insurers to produce the best premiums and services possible for each customer. So, no problem there then.
Then there is the SME PMI market - what claims information is available here? Well, with a few notable exceptions, none. Even when something does appear, it can be very inconsistent. Some people have it, some do not. This information is given to an individual and a corporate, but if it is decided that the SME policy will be rated in a particular way, it will not be given to the customer. Is that fair?
SME PMI may not be a huge market in insurance terms - somewhere between £600m and £900m perhaps; however, it does include the majority of businesses in the country, so the PMI market would be wise to treat it properly if it values its future.
There lies the rub. Claims experience is not generally available to policyholders, brokers or competing insurers in the SME market. The obvious questions that follow are: "Why not?"; "what impact does it have?"; and "is it right?"
In truth, unless they are real barriers, the reasons do not really matter. The regular ones that are rolled out have all been dismissed long ago.
"The Data Protection Act does not allow it" - but it is no different to corporate business.
"We cannot get the details" - this is really not credible.
"Experience is not relevant because we do not rate on it" - this is irrelevant and, in most cases, simply untrue.
As insurers calculate what premium they believe is correct for a particular group, in differing ways - the majority consider the claims experience of the group and to a varying degree with differing methods - they reflect it in the premium offered. There are administrative bits around, but, for the purpose of this exercise, the market must concentrate on the premium.
Then it is sent out to the broker. On average, the increases vastly outweigh retail inflation and the industry says this is down to medical inflation, which includes increases in claims. When the broker repeats this to its client, the client wants more details, rightly expecting that it would have something to do with claims made on their scheme. The broker then has to hold their hands up and say, "I don't know". So, in the simplest of terms, the broker appears unprofessional to the client and, most importantly, is not in a position to obtain the best quote either. Of course, they then have to go away and get the best quote available in the circumstances, sound in the knowledge that with that little bit more information they are able to do a proper job.
In reality, if that group had low claims experience, there is little doubt that the market would have sought to compete for the business and the premium the broker could have obtained would have been lower. As it is, the market is left to look for alternative proxies that indicate the possible future performance. They are not as accurate and, certainly, compared to claims experience, they discriminate on weaker information.
So far, the policyholder is worse off, the broker cannot do their job in the way they want to, and the other insurers in the market are not able to offer their best quotes. What other effects are there?
Well, PMI is administratively heavy. It does not have the benefit of the electronic initiatives available in other markets, which the market could so dearly do with to bring down administration costs - again, to the benefit of the customer. The systems are available, developments are starting, efficiencies are there to be realised in service and cost. But wait. With all the questions insurers are asked, to try and get round the lack of claims information, they will not work. The release of this little piece of information will open the door to these efficiencies and many more too. But that is a subject for another day.
So there it is - if these are the effects, how can it possibly be right?
But, for the release of a little claims information that the market is already releasing for most of the business, it can:
n Allow brokers to do the job the Financial Services Authority charges them to do.
n Increase the competition in the market to the benefit of the customer.
n Increase the efficiency and service levels in the market.
n Honestly be able to say it treats customers fairly.
Frankly, the argument is so compelling, it is time for the PMI market to stop burying its head in the sand and pretending everyone else has to deal with this issue. If the regulator has to point out something so obvious, then the market's credibility will be seriously weakened.
It brings memories of an advert for a union from many years ago, where they were demonstrating the power of many voices. It is time that the industry took this approach and recognised what it has to do. Brokers and insurers together must correct this failure and should do so quickly.
Then and only then can the PMI market say it treats all its customers fairly.
Alistair Sclare is head of healthcare underwriting at Groupama Healthcare
