While markedly more successful at a corporate level, private medical insurance could offer today's health-conscious public exactly what they want if only it was packaged better, writes Dave Priestley.
Financial services products need to be adaptable in today's increasingly competitive and demanding market. From pensions and annuities to mortgages and car insurance, these products have evolved to suit today's world and, most importantly, meet the needs of consumers. Health insurance should be no different. The industry needs to recognise what customers want from their private medical insurance (PMI) both today and in the future, and find ways to provide it that are accessible and engaging.
Traditionally, PMI providers have wanted to attract young and healthy people into their pool of members in order to help keep the average premiums down for all their policyholders. The obvious problem with targeting this subset of the population is that they do not tend to buy PMI as they do not think they need it. Selling PMI to the young and healthy becomes even more difficult given the unavoidable fact that with the majority of insurers premiums rise on a yearly basis, so not only are healthy people being asked to buy a product they do not think they need, but they are also being asked to pay a considerable amount for it.
It would seem logical then, that every insurance provider would be racking its brains trying to think of ways to incorporate 'wellness' into its PMI offerings in order to come up with a product that is attractive for both the healthy and the less healthy. The problem providers are facing is compounded by an under-consumption of preventative care on the part of society in general. For the most part, customers buying PMI products have little incentive to take any preventative measures to improve their health - yet so many illnesses and diseases are avoidable if people took greater control of their health and lifestyle. Running in parallel to the under-consumption of preventative care, and also proving problematic for PMI providers, is an over-consumption of treatment. For corporate members - the majority of people with PMI - this is especially true as they are not paying for treatment directly, so when they need it they want the best available with no account of cost.
Given all these issues facing them, it may seem surprising that relatively few providers incorporate the notions of health and wellness into their PMI offerings in an attempt to provide at least a partial solution. Although a growing number of providers are starting to see the value of making wellness a key part of their offering, the majority are not embracing what today's society expects, wants or needs from its PMI.
What is crucial to note at the outset is that there is a big difference between simply bolting on additional wellness services at extra cost and truly integrating wellness into a PMI proposition. The former will not ensure that customers engage with wellness services or benefit from them. The key to meeting the needs of customers is making these services part of the PMI product itself by linking them to the value of the product, rather than simply making them available at extra cost, an approach that has not worked in the past and will not work now.
a guiding hand
The innovative new PMI models try to counter these issues while also providing incentives for existing policyholders to develop and maintain healthy lifestyles.
Products that work in this way move the debate away from sickness and ill health towards health and wellness instead. They help to expand the market as they are popular not only with people who have always bought PMI products, but also to those not traditionally seen as the product's target audience.
In addition, with an ageing population here in the UK, health and wellness activities are increasingly important. Providing a variety of activities that customers can participate in through partnerships with gyms, health spas and health-screen providers are of huge value to many people, so the product appeals to a wider market and makes the sale easier for brokers.
Reward schemes should cover five areas - education, exercise, nutrition, screening and smoking cessation - and members should be able to earn points by participating in healthy activities related to each area. Those points can enable members to move up to different status levels and benefit financially for doing so.
The idea is that rewards will encourage members to improve their health. There is evidence to show that the more customers engage with their PMI products, the fewer number of claims will arise. PruHealth recently undertook some research of its own member base in which almost 50% said they live a healthier lifestyle as a result of engaging with Vitality, the firm's rewards scheme. The research shows that, on average, small to medium-sized enterprise clients see a 6% reduction in their premiums on renewal compared to typical premiums, which increase by 10% to 15% each year. Also highlighted by the research was the fact that members who move above 'bronze' status (the lowest status level) are two thirds less likely to claim on their policies compared with those members on bronze.
Looking at these statistics and examining this new approach to health insurance, it is perhaps possible to wonder whether there is a danger of healthy people becoming the only customers able to afford PMI products, with rewards increasing in tandem with their engagement. Although there is no question that healthy people can see the value in the new PMI propositions coming into the market, this is not at the expense of unhealthier customers.
For healthy customers, these new propositions can support them in their endeavours to live a healthy lifestyle while making it more affordable and rewarding for them.
Also important to remember is the fact that potential customers who have already suffered from ill health are more likely to recognise the value of PMI and are more likely to want to look after their health and wellbeing in the future.
By attracting and retaining healthy members, as well as improving the health of those within the member base who are less healthy, providers can keep the costs of PMI low for everyone by removing the financial barriers usually associated with the health insurance industry. And by proactively encouraging members to live a healthy lifestyle, providers can manage the cost of claims so that we can continue to extend cover without increasing the price.
The young and healthy are the people who, if they were insured, would help to bring the average premium down. But currently they choose not to insure themselves. To avoid this adverse selection problem, insurers need to create a product that appeals to their outlooks and lifestyle - for instance with subsidised gym membership, health screens and health spas.
But just getting young and healthy people into the pool - although good - is not enough. As well as this, insurers need to look at how they can bring premiums down even further. And the only sustainable way of doing that is to improve peoples' health and awareness of their overall wellbeing. n
Dave Priestley is sales director at PruHealth
