As the cost of traditional private medical insurance (PMI) continues to rise, Angela Faherty asks whether PMI on a budget can actually be achieved
The private medical insurance (PMI) market has not been without its problems over the past few years. Sales in the individual sector have fallen and the market as a whole has remained fairly static, leaving the sector relatively stagnant.
While there are a number of reasons for the market's failure to grow significantly - including medical enhancements and the rising cost of treatment - one of the continued challenges facing the PMI sector is cost.
PMI is often considered a product for the wealthier members of society, leaving low and middle-income earners with the services of the NHS. Continued medical developments have led to escalating premiums, causing many long-term customers to cancel their policies because they can no longer afford to pay the premiums.
Due to the stagnant nature of the market, providers have realised the need to develop and adapt the traditional PMI solution to cater to the needs of a wider customer base. High excesses, restricted benefits and restricted access to hospital networks have been introduced to help combat the rising cost of healthcare and make the proposition more attractive to customers in the lower socio-economic groups.
Providers feel these innovative budget plans are a way of opening up the market to a greater number of customers, as well as helping to boost the number of people opting to take out or retain their PMI cover.
While the budget option may seem like a well thought-out solution, is it a viable long-term product? Does budget PMI have a place in the market, or is it simply a lean proposition that will only serve to further confuse and alienate potential customers?
Cheap and cheerful
Advisers and providers are confident budget PMI has its place, but many are also keen to stress customers need to be aware that budget solutions are cheaper for a reason.
"I think budget PMI plans have a place in the market; they certainly hold a lot of potential," says Julia Maxwell, managing director of Premier Health.
"However, advisers working in the market need to ensure their clients fully understand exactly what it is they are covered for and what they may have to pay for themselves if the need arises."
Maxwell's point is significant when considering the range of budget options available. Evidently, the cost of a comprehensive plan is beyond the means of many people, but lowering premiums is not an option while take-up is low and the cost of medical treatment is high. Therefore, it is the elements of cover that need to be restricted.
The recent spate of innovative, low-cost PMI solutions have focussed on specific treatments - outpatient-only cover - and tend to provide no-fringe benefits, such as access to physiotherapy and other diagnostic treatments. The market has also seen a number of policies offering a six-week waiting period to help reduce premiums.
However, the cover offered under budget schemes varies between providers and what one insurer considers a fringe benefit, another may consider to be an integral part of the budget solution.
The main point advisers need to keep in mind when offering budget PMI solutions is the needs of each individual. The reasons for taking out cover and the healthcare priorities of clients are all different and understanding this is key if budget PMI is to present advisers with an opportunity to get to those clients previously thought to be out of reach.
For example, a couple with two young children will have different reasons for taking out cover to a person aged 60, but in both cases a budget option can be provided.
In the case of the young family, an inpatient-only plan is not an ideal solution, as the main priority will often be the health of the children, as Claire Ginnelly, national sales manager at Standard Life Healthcare (SLH), illustrates.
"Children are generally more prone to illness and there is also the added worry that goes with a poorly child. Due to this, a budget plan offering inpatient and outpatient cover without the bells and whistles is the ideal solution as it caters for the primary elements of healthcare," she says.
While inpatient-only cover will undoubtedly be cheaper, clients need to be able to fund the cost of all outpatient treatment themselves and it is important they understand this. One of the pitfalls of inpatient-only treatment is that it usually follows outpatient treatment, so in most cases, the client will have to pay out.
For those wanting to get the maximum amount of cover, but who still struggle to meet the cost of premiums, taking out a policy with a high excess can help to lower the monthly expenditure. However, this is perhaps more suited to an older client who has a certain amount of capital invested, or a savings fund to dip into.
"The best option for a person aged 60, for example, would be to take out a comprehensive plan with a high excess. Taking out a £5,000 excess on a policy could help to lower the premiums by up to 80%," says Ginnelly.
Whether a high excess policy can actually be regarded as a budget plan is questionable. It would be unlikely for a client looking for a budget option to have that amount saved. But nevertheless, it can turn an expensive plan into a less costly plan if there is a need to do so.
However, in most cases, a client looking for PMI on a budget will be looking at getting the most value for their money and will probably be unable to pay out a lump sum if the need arises.
"One of the main points to remember is that the needs of every individual differs, and the key is to balance budget with value for money and look at exactly what it is the client wants cover for," says Gary Robins, sales manager at Norwich Union Healthcare.
Saving your pennies
When comparing premiums, these can range significantly between each provider. Clinicare's Club budget plan costs £111.02 per month for a family of two adults and two children under hospital band A. In contrast, the lowest premium - £68.67 - is offered by Norwich Union Healthcare's (NUH) Fair and Square Starter policy and is based on the same criteria.
The savings that can be made on budget plans are clear when compared with the monthly premiums for both providers' comprehensive plans.
The cost of Clinicare's Carte Blanche plan from January 2004 for a family of four in band A is £371.66 per month, while NUH's Fair & Square fully comprehensive plan is £144.77.
While these are only two examples showing the difference in cost between comprehensive and budget policies, the savings that can be made can be clearly seen. And for a couple with two small children, every penny counts.
For advisers looking to boost their PMI sales, budget PMI plans could offer a solution. For far too long, PMI has traditionally been considered out of reach of the majority of people. However, providers have started to realise if a solution is not provided, the market will see a decline. Similarly, advisers need to have a lower cost option for those who cannot afford to pay incredibly high premiums.
The key to selling budget PMI is understanding the needs of the consumer. The issues surrounding NHS provision has led to an increasing number of individuals looking for ways to get quicker access to treatment and PMI can provide a solution to this.
Budget plans present a way of catering to the needs of those who want to buy - but cannot afford - traditional PMI. The key, however, is to understand the priorities and needs of each client and to ensure the plan adequately fits their needs.
Cover notes
• One of the main challenges facing the PMI sector as a whole is cost.
• Budget PMI offers a low-cost alternative to those unable to afford traditional cover.
• Advisers must ensure their clients are aware of the limitations of budget plans.
