With the majority of intermediaries supporting increased sharing of SME claims information in the PMI sector, Claire Ginnelly questions why the industry remains stuck in the mud
The UK has reached a pivotal moment in the history of small group private medical insurance (PMI) where it should be asking key questions who is best placed to serve the interests of small and medium-sized enterprises (SMEs)? Is it the insurers that manufacture the products or the intermediaries who bring them to market?
This is not a philosophical debate but an urgent one because a growing proportion of the intermediary market, including the insurers that unequivocally support them, is dissatisfied with the sharing of claims information between insurers and intermediaries.
In a recent Groupama Healthcare survey, 97% of intermediaries said they would support a change in market practice to facilitate claims information sharing on SME accounts. Some 89% said they would support Groupama's efforts to encourage the whole PMI market to share full claims data as standard and 8% said they would probably support the initiative.
Groupama is a business trying to compete against established companies with greater market shares. It sees the playing field as tipped against the company because it cannot access claims information on cases held by larger firms. Without this information, Groupama cannot provide brokers with a truly personalised quote and this vastly reduces the likelihood of the account moving from a holding insurer.
Of course, the argument can be seen from the opposite corner. Holding insurers do not want to share claims information because it would increase competition and threaten their dominance. But this is not simply a matter of competing interests between insurers. This is a regulated world and stifling competition seems contrary to the essence of the Treating Customers Fairly (TCF) initiative.
The unease of traditional insurers would have more leverage if they could suggest with credibility that claims data-sharing would set the small group PMI market apart from other classes of insurance.
But ask anyone from another branch of commercial lines business whether they could work effectively without sharing claims information and they would be surprised that the question is even being considered. Sharing information is routine in other classes. It oils the wheels of these markets and keeps them running efficiently.
When the operations of the SME healthcare market become apparent, those working in other lines were unsure whether to laugh or shake their heads in sympathy. These are classes of business with annual premium incomes of many billions. The small-ticket group PMI market is worth £900m a year at best, so size or prominence is not justification for maintaining a practice at odds with the rest of the industry.
What is more infuriating is that claims information on larger corporate PMI accounts is shared quite readily, and without any obviously damaging impact on market function. How can the smaller end of the PMI market suggest it is in some way a special case?
No excuse
The insurers that are reluctant to share information sometimes hide behind the constraints of data protection concerns or say the administrative hurdles would be too costly to clear. But data protection should not be an issue here any more than it is elsewhere and the administrative issues can be solved if there is a will. Any business that could not generate this information almost with the push of a button needs to take a close look at its IT systems.
Going back to TCF, how exactly does the current way of working prejudice customers' interests?
The simple fact is that an insurer cannot quote accurately for a piece of new business if it does not know its claims history. It is quoting blind by relying on broad assumptions and non-specific market trends. Inevitably, it errs on the side of caution and quotes a price that assumes a poor claims history so as not to pick up a stinker on disastrous terms. The broker is then unable to find a quote with which to challenge the status quo. This is the reason why less than 10% of the market moves each year.
This means the policyholder and the broker are denied access to a genuine, competitive market. If the true claims data was known, no doubt the market would have sought to compete for the business and terms the broker could have obtained which would have been hugely improved.
The implication is that, across the market, SME PMI premiums may be higher than they need to be because there is no competitive pressure. Does that sound like an environment in which TCF could flourish?
Experience also suggests that some insurers use claims information selectively in order to control pricing and influence market behaviour. Therefore, with a risk that is performing poorly and generating a high proportion of claims, the information is miraculously available. But when claims are low, the flow of information suddenly dries up and the effect is that genuine competition is only stimulated for unattractive business.
Aside from the crude determinant of price, there is another cost factor to consider - administration. Small group PMI business is notoriously expensive to run, if for no other reason than it does not benefit from the market-wide IT initiatives that have assisted other areas in recent years. And why is this the case? Because such systems depend on the flow of information. They require transparency between insurers. And that is precisely what the SME PMI sector does not have.
To reiterate, systems already exist that could bring huge benefits to the small group healthcare insurance market - imarket in the general insurance arena leaps to mind. Such facilities have proved their worth in other lines of business where they have enhanced performance and helped control costs. They cannot work in the SME healthcare market as things stand because the essential lubrication - information - is not available.
We are in the era of e-commerce. For the healthcare insurance market to deny the benefits to its customers is perverse. It effectively means standards have come to a halt. So while the rest of the insurance industry makes progress, this outpost of the 20th century effectively retreats.
Thanks to technology, general insurance brokers enjoy single keying of information where it used to take up to nine re-keys to process a single piece of business. They can get instant quotes and immediately convert proposals into policies online - it used to take up to 45 days to issue a policy. And it now costs them only 10 pence in the pound to do the business whereas it used to cost 35 pence.
The problem, of course, is that the insurers who benefit from the current situation think sharing information would be financial suicide. But this is not the case. Groupama's campaign for transparency seeks to level the playing field so all insurers can compete on equal terms. Surely providers cannot be afraid of a little honest competition?
There is, of course, a limit to what Groupama can achieve on its own. For lasting and radical market-wide change to be secured, momentum has to come from those who have the whip in hand - brokers. They need to put pressure on insurers to overhaul their attitudes and modernise their approach to business.
Rough ride ahead
If the issue is not resolved, the benefits of 21 century business practice will not be achieved. That would be bad enough. But it would also see the small group PMI market drifting further from the objectives and purposes of TCF leading to the possibility of strained relationships between the market and the regulator.
There are other concerns. How can brokers advise clients on risk management if they do not know where the claims are occurring? How can brokers and insurers in the SME healthcare market hope to defend themselves against incursions by super-slick direct writers if they are effectively fending off laser beams with quill pens and ledgers?
PMI clients buy plenty of other covers, either for the business or as motorists, householders, holidaymakers and pet-owners. They see how business is conducted in these classes and then they return to the expensive anachronism that is healthcare. Sooner or later they will demur from buying such a crass and costly product. The industry must act to improve its offer before it is too late and the starting point needs to be the transparent sharing of claims information.
- Claire Ginnelly is head of business development at Groupama Healthcare.
