Private medical insurance has seen a number of developments in the last 15 years. Jan Lawson looks at what the future may hold for the sector
The private medical insurance (PMI) market has developed at a relatively slow pace over the last 15 years, with few insurers displaying any creativity and seeming more interested in their products rather than the needs of the public. Overall, the market has been largely stagnant, and insurers have shown little concern, appearing to adopt the view that by selling less they risk less.
Creative
Between 1989 and 1999, 23 insurers entered the PMI market believing it presented significant growth opportunities. What many of these companies did not appreciate is the intensive administrative nature of PMI, where claims occur on approximately a third of all policies in any year. The least creative insurers believed that all they needed to do was mirror the existing plan formulas, add a few trivial extras and quote premiums slightly less than the best known brands.
It was therefore no surprise that during the same period, 14 insurers left the market, including Abbey Life, Cornhill, Eagle Star, London and Edinburgh and UAP Provincial. It is a startling fact that of those 23 original newcomers, only seven remain today.
On a more positive note, the market has also seen some innovation. The most radical being Prime Health's - now Standard Life Healthcare - introduction of no-claims discounts, which rewarded non-claimants with lower premiums.
Other developments concentrated on reducing the scope of cover in order to reduce costs. The most popular was the development of essential benefit plans, which typically removed cover for things such as psychiatric care, pregnancy complications and treatments outside the UK.
There was also the development of restricted hospital choice using networks of mainly private hospitals, where insurers were able to negotiate pricing agreements and achieve economies in claims costs of between 5% and 10%.
More recently, there has been the development of high excess plans and a shared responsibility approach pioneered by WPA, which has also been at the forefront of marketing PMI via the internet.
These high excess arrangements recognise a growing trend for the private hospital to be marketing their services direct to the public. This has resulted in a 25% increase in the self pay market during the last couple of years, often funded by bank loans, second mortgages or simply paying out of capital and savings.
While self pay is an attractive option for some people, especially for common procedures such as hip replacements, it is not the complete answer as many medical conditions cannot be bundled into fixed cost surgery packages.
In particular, treatment for cancer can escalate into many tens of thousands of pounds, a risk few people are willing to take, which is why high excess PMI schemes with unlimited cover, offering that all important safety net, do appeal.
Other initiatives include surgery only plans which are simpler to price and those which provide cover for a limited range of specified conditions, usually those with the longest waiting times - an attractive option when compared with the NHS.
The current trend is for insurers to unbundle plans with one central core level of cover to which consumers can add other options according to their requirements and budget. The newest options cover a broad range of treatments, and include service provisions such as a treatment sourcing scheme to improve usability and create a more rounded product offering.
It is too soon to say if these products will be successful. But they deserve to be simply because they have broken the mould of conventional PMI and offer subscriptions that should attract new purchasers rather than just recycling the existing pool of traditional buyers.
Major advances
There have also been significant changes in premiums. In 1988, a monthly premium of £34.30 would provide a quality medical expenses scheme to cover a small family - the same scheme today would cost £132.53. But it isn't just price that has been affected. A number of other changes have affected the sector, including major advances in medical treatment.
In 1989, it was highly unusual to see an individual course of treatment exceed £15,000. Now this is a regular occurrence and unusual claims can be at least four times this amount. While insurers have been busy trying to address the ever rising claims and spiralling costs, medical technology and treatment techniques have not stood still. The last 15 years have seen significant development in the use of keyhole surgery and day-case procedures minimising the length of stays in hospital.
Scans are now a frequent diagnostic tool rather than the conventional x-ray, giving much more accurate results but at ten times the cost. The numbers of caesarean section births has also increased dramatically. They used to account for a very small percentage of deliveries and insurers were prepared to pay for these as a medical complication under a private medical scheme.
Now there is a vast increase in women choosing to give birth this way, so insurers are no longer able to judge which type of birth is medically necessary and as a result, some are now restricting this area of cover.
Demanding
There are also some areas of treatment that insurers will not cover. Several of these are the results of changes in public lifestyle as well as advances in medicine and surgery.
Someone wanting an operation to stop them snoring - sleep apnoea - will find insurers are not willing to pay out for what is often regarded as a 'social requirement', not a medical necessity. Additionally, cosmetic surgery, such as a breast enlargement or the removal of fatty tissue is not claimable unless it can be proved there is a life threatening or medical reason for the treatment.
Similarly, consumers' expectations have become more demanding. People are no longer willing to put up with painful or inconvenient conditions and expect medicine to have the answer. At the same time, people in society are becoming more litigious, so the medical profession is under growing pressure to never make a mistake - an impossible dream.
So what does the future hold for PMI and advisers? Is this a market they should be addressing? Overall, there are still opportunities to develop the market, especially in the company paid sector where employers are increasingly viewing PMI as an absence management tool rather than an executive perk.
The individual market is harder, as potential purchasers need to be convinced of the product's value. This is where advisers can have a positive impact in explaining the differing product styles and genuinely assisting clients in purchasing the most suitable cover for their budget and needs.
The conventional product still remains the one best suited to living up to client expectations, although at a cost. New concepts are being proposed by some of the more adventurous and creative insurers, which means the choice will ultimately be with the consumer.
However, people will need advice as this choice continues to increase, and experienced and impartial advice on what is available, together with cost and realistic expectations, is as important as ever.
One area where only good can come is the regulation of the PMI market by the Financial Services Authority. Regulation is adding greater pressures and costs on smaller intermediaries and many are looking at ways to help spread the burden of compliance.
However, regulation will ensure the public receives full information on the insurance contract they choose. Both insurers and intermediaries are being made responsible for ensuring the policyholder is sufficiently informed, a move which is both right and proper.
Jan Lawson is managing director of The Private Health Partnership
COVER notes
• The self pay market has seen a 25% increase in business over the last couple of years.
• Only seven of the original 23 companies starting out in the PMI sector are still present in today's market.
• In 1989, it was highly unusual to see an individual course of treatment exceed £15,000.
