Defaqto's star rating of private medical insurance products has excited controversy among many players in the sector. Ben Heffer explains the rating agency's case.
Each PMI policy on the market has been given an independent star rating of one to five, depending on how comprehensive they are. The key is for people to identify the right level of product for their needs, whether this happens to be a one or five-star rated product.
Policies are rated against the 50 most important features and benefits of private medical insurance. We chose these features by using our whole of market financial product database and the expertise of our in-house analysts. In addition, this thinking has been validated by taking feedback from providers and distributors.
We score the products on a one-to-five scale against each feature or area of cover, where five represents the highest level of cover against that feature and one the least comprehensive. The aggregated scores enable us to assign the product an overall rating.
ALL BASES COVERED
Importantly, the scoring takes into account not just the number of features offered, but also the level of cover in each area. Also, 14 of the criteria are designated as core criteria.
In order to achieve a five-star rating, a product must offer a specified level of cover in these areas. This prevents products from being awarded a five-star rating simply on the basis of a high aggregated score.
The core criteria for PMI relate to hospital availability and essential inpatient and outpatient cover. We have also included cancer therapies in the core criteria.
People with PMI may quite reasonably expect their policy to pick up where the NHS cannot deliver. The area of expensive biological and hormonal drug therapies that may not be approved for use in the NHS is a case in point.
We therefore hold that to achieve a five-star rating, a product must cover these cancer therapies.
It is important to emphasise that star ratings are a measure of comprehensiveness – an indication of the type and level of features and benefits that a policy offers.
They are not about ‘best’ and ‘worst’. Each level can potentially offer what someone needs. It will very much depend on their specific requirements. This works well in the PMI area as policies covering diagnosis, in/outpatient treatment and additional therapies will have a high star rating, whereas policies dealing just with specified treatments or diagnosis, for example, may get a lower rating.
For consumers buying direct, star ratings help them to segment the market. For those buying via a broker, star ratings help to validate the recommendation they have received. If a client’s needs are complicated and they have had to buy a policy with more features, that message will be reinforced by the higher star rating the product has received.
If, however, their needs are relatively straightforward and they purchase a more basic plan, the lower star rating will underline that message and, in time, encourage them to upgrade their cover as the need arises.
In addition, star ratings give intermediaries an indication of the level of features offered by PMI products, and provide an unbiased view of the quality of a product, allowing intermediaries to understand where a product sits within the wider market.
PROMOTING UP-SELLING
Star Ratings can also be used by insurers to position their products and encourage up-sell. For example, they help providers differentiate and promote their products on features rather than price. They can also enable them to demonstrate openness about the quality and standard of their products’ features, resulting in an honest and trusted brand.
Star ratings also increase confidence and understanding of where providers’ products are positioned in the wider market, with intermediaries among others.We are confident that having an independent star rating for PMI will help to reinforce awareness of the product generally and to underline specifically the importance of features and benefits over and above considerations around price.
Ben Heffer is insight analyst, life & protection, at Defaqto
